SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[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 12/31/98 Commission File No. 0-9416
WCM CAPITAL, INC.
(Formerly 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. $8,317.00
State the aggregate market value of the voting and non-voting common equity
stock held by non-affiliates computed by reference to the price at which the
common equity was sold, or the average bid and asked price of such common equity
as of a specified date within the past 60 days $3,939,268
State the number of shares outstanding of each of issuers' class of common
equity, as of the latest practical date.
3,955,169 as of March 31, 1999
DOCUMENTS INCORPORATED BY REFERENCE IN PART III - SIX
Transitional Small Business Disclosure Format (check one) Yes[_] No[X]
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PART I TABLE OF CONTENTS PAGE
Item 1 Description of Business 03
Item 2 Properties 09
Item 3 Legal Proceedings 16
Item 4 Submission of Matters to a Vote of Security Holders 20
PART II
Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters 21
Item 6 Management's Discussion and Analysis or Plan
of Operation 25
Item 7 Financial Statements F1-F27
Item 8 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 29
PART III
Item 9 Directors, Executive Officers, Promoters, and Control
Person; Compliance with Section 16(a) of the
Exchange Act 29
Item 10 Executive Compensation 31
Item 11 Security Ownership of Certain Beneficial Owners
and Management 31
Item 12 Certain Relationships and Related Transactions 32
PART IV
Item 13 Exhibits, Reports on Form 8-K 32
Signatures 37
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PART I
Item 1. Description of Business
General
The Company, originally incorporated on December 1, 1976 under the laws of the
State of Delaware, is engaged in the exploration, development and mining of
precious and nonferrous metals, including gold, silver, lead, copper and zinc.
The Company owns or has an interest in a number of precious and nonferrous metal
properties. The Company's principal mining properties are (i) the Franklin
Mines, located near Idaho Springs in Clear Creek County, Colorado, for which the
Company acquired the exclusive right to explore, develop, mine and extract all
minerals located in approximately 51 owned and/or patented mining claims (the
"Franklin Mines") and, (ii) the Franklin mill, a crushing and flotation mill
which is located on the site of the Franklin Mines (the "Franklin Mill"). For
information regarding the Gold Hill Mill and the Mogul Mine, see Item 1.
Operations at the Company's Mining Properties. (2) Newmineco and the Mogul Mine
and (3) The Gold Hill Mill (until its sale in June 1998). While none of its
properties were operational in fiscal year 1998, the Company continued its
rehabilitation of the Franklin Mines and Franklin Mill in anticipation of the
commencement of operations.
History and Development of the Company
The claims that comprise the Franklin Mines are located on a site upon which
placer gold was discovered above the ground at Idaho Springs, Colorado in 1859.
The Franklin Mines vein system was discovered in 1865. Thereafter, mining
commenced on the site in 1865 and continued on an almost uninterrupted basis
through 1915 until the outbreak of World War I caused curtailment of mining
operations in the area. The principal minerals extracted during this period were
gold, silver, lead, copper, and zinc. The Franklin Mines have not operated on a
continuous or consistent commercial basis since 1915.
On December 26, 1976, the Company acquired Gold Developers and Producers
Incorporated, a Colorado corporation which, prior to the acquisition, leased 28
patented mining claims from Audrey and David Hayden and Dorothy Kennec pursuant
to a mining lease and option to purchase, dated November 12, 1976 (hereinafter
collectively referred to as the "Hayden/Kennec Leases"). In 1981, the Company
commenced a rehabilitation program to extend and rehabilitate the shafts and
tunnels in place at the Franklin Mines, install the Franklin Mill and search for
and delineate a commercial ore body. The Company completed the Franklin Mill,
which is capable of crushing, processing and concentrating approximately 150
tons of ore per 24-hour period, in 1983.
Joint Ventures and Strategic Partners
In February, 1993, the Company and Island Investment Corp., a Nevada corporation
("Island"), formed Zeus No. 1 Investments, a California general partnership
(hereinafter referred to as "Zeus", the "Joint Venture" or the "Zeus Joint
Venture") to develop the Franklin Mines and related assets of the Company.
Island later assigned its interest in the Zeus Joint Venture to Gems and
Minerals Corp., a wholly owned subsidiary of Island ("Gems"). On July 15, 1996,
Gems transferred 31.5% of its 82.5% interest in the Zeus Joint Venture to Nuco
Ventures, Inc., a Delaware company and wholly owned subsidiary of Gems ("Nuco").
The Joint Venture was formed to provide the Company with the financial and
technical support necessary to develop the Franklin Mining properties. While the
Zeus Joint Venture was granted the exclusive right to use the Franklin Mining
properties, at no time did the Company transfer its leasehold interests or
ownership interest in its mining permits to the Joint Venture or to Gems. The
Company did, however, relinquish its interest in 82.5% of the profits from
operations at the Franklin Mine and Franklin Mill as Gems was to contribute
necessary capital and other technical support to bring the Franklin Mines into
operation. Each of Gems and the Company were free to pursue other business
interests outside the Joint Venture exclusive of the other.
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Since the inception of the Joint Venture, Gems maintained responsibility for
supplying technology, engineers and personnel, as well as additional equipment
and financing to bring the Franklin Mines and Franklin Mill into operation. The
Company retained responsibility for keeping its permits in full force and
effect. However, since the Company had limited financial resources, it was
dependent on Gems for its primary funding.
In early 1997, an officer of the Company introduced Gems to William C. Martucci
("Martucci"). Martucci began negotiations with Gems to enter into a possible
business combination between Martucci's businesses, on the one hand, and
businesses owned and/or operated by or affiliated with Gems (the "Gems
Businesses"), on the other hand. The Gems Businesses included the 82.5% interest
in the Zeus Joint Venture.
By mid to late 1997, it became apparent to the Company that Gems did not possess
the technical and financial resources required to bring the Franklin Mines into
operation as contemplated by the Joint Venture. Also, during this period, the
Company had established a relationship with Martucci independent of Gems. On
September 25, 1997, the Company entered into a letter of intent, (the "Martucci
Letter of Intent"), with Martucci to acquire (the "Transaction") all of the
outstanding shares of POS Financial Corp., a New Jersey corporation ("POS") and
certain other entities owned by him including U.S. Mining, Inc., a New Jersey
corporation ("USM"), in exchange for newly issued shares of Common Stock of the
Company. USM is in the business of investing in mining properties and POS owns
and operates free standing ATM Kiosks.
Pursuant to the Martucci Letter of Intent, Martucci would receive approximately
85% of the outstanding shares of the Company, upon the closing of the completion
of customary due diligence, the execution of definitive agreements and the
approval of Franklin stockholders. Additionally, Mr. Martucci agreed to cover
expenses incurred with respect to the Transaction in the form of loans to the
Company. Management believed that the financial support to be supplied by Mr.
Martucci pursuant to the Martucci Letter of Intent would be sufficient to fund
the Company prior to the consummation of the Transaction.
On November 25, 1997 in a step transaction, USM acquired an aggregate of 82.5%
interest in the Zeus Joint Venture from Gems and Nuco in exchange for the
assumption of approximately $100,000 in liabilities of Gems (the "Gems
Liabilities"). USM thereafter simultaneously assigned the acquired interest to
the Company in exchange for the assumption of the Gem's liabilities. Upon the
acquisition of the 82.5% interest of the Zeus Joint Venture by the Company, the
Zeus Joint Venture relationship with Gems was terminated and the Joint Venture
was effectively dissolved. The result of the termination of the Zeus Joint
Venture is that the Company has reacquired the right to received 100% of the
profits generated from the Franklin Mines and Franklin Mill once these
properties come into operation which will further enhance the Company's future
profitability.
On April 6, 1998, Martucci terminated the Martucci Letter of Intent. During
1997, USM and/or affiliates advanced to Franklin approximately $955,756 of funds
including approximately $410,000 advanced to the Company by POS through advances
made to Gems for the Company (the "POS Advances"). On March 9, 1998, the Company
executed a Loan Agreement and Promissory Note (the "USM Note") evidencing the
terms upon which the Company would repay the USM Advances and upon which USM
would advance additional funds to the Company on an "as needed" basis. The USM
Note; in the principal amount of $955,756, bore interest at a rate of 8% per
annum and was due and payable on May 4, 1998, but could be extended on a month
to month basis. The USM Note is secured by a first priority lien on
substantially all of the assets of the Company. POS thereafter assigned the POS
Note to USM on March 9th, 1998. As of December 31, 1998, the Company owed USM
$1,283,536 of which $1,191,586 is attributable to principal and $91,950 to
accrue and unpaid interest on the USM Note. The Company has not, as of March 31,
1999, made any payments on principal and/or interest accrued on the USM Note.
On or about August 3, 1998, the Company entered into agreements with each of USM
(the "USM Agreement") and Martucci (the "POS Agreement"). Pursuant to the USM
Agreement, USM agreed to forgive the indebtedness of the Company evidenced by
the USM Note; release the security interests in the
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collateral of the Company securing the USM Note and assign its rights to the
Hayden-USM Purchase Agreement in exchange for 42.5% of the issued and
outstanding shares of the Company.
Under the terms of the USM Agreement, Martucci agreed to sell to the Company
100% of the outstanding shares of USM in exchange for 42.5% of the issued and
outstanding shares of the Company. The Company intended to seek stockholders'
approval of these transactions at its Annual Meeting of Stockholders held in
October 1998.
In August 1998, the Company filed a preliminary proxy statement with the
Securities and Exchange Commission (the "Commission") for its annual meeting of
stockholders, which included proposals to approve each of the USM Agreement and
the POS Agreement. Shortly after the filing of the preliminary proxy materials,
the Commission informed the Company that the staff of the Commission (the
"Staff") would be conducting a review of the proxy materials and the proposals.
The Company informed USM of the Staff's inquiry and was thereafter notified that
USM wished to terminate the agreements under the premise that the Company could
not secure stockholder approval of the transactions in a timely manner. See Item
4. Submission of Matters to a Vote of Security Holders for further information
about the Annual Meeting of Shareholders of the Company held October 12, 1998.
On September 21, 1998, the Company received a letter from USM concerning the
monies loaned to the Company by USM, which included the monies owed to USM by
the Company pursuant to the terms of the POS Note and an additional $144,280
loaned to the Company subsequent to the date of the POS Note. At a meeting of
the Board of Directors of the Company on October 8, 1998, a negotiated
settlement agreement was approved by the Board, whereby USM agreed to convert
the Company's indebtedness to USM into shares of common stock of the Company at
a conversion price equal to 50% of the closing bid price as of the close of
business October 7, 1998. The price of the Company's common stock at the close
of business on October 7, 1998 was $.66 per share. Therefore, the conversion
rate under the settlement agreement would be one share of common stock of the
Company for each $.33 of indebtedness of the Company to USM.
It was further agreed that the settlement plan would be implemented in a two
step transaction. Approximately $306,160 of loans would be paid by converting
that portion into 927,757 shares of common stock of the Company resulting in USM
holding approximately 19% of the total issued and outstanding shares of common
stock of the Company. The conversion of the remaining indebtedness would be
predicated upon either (i) stockholder approval of the issuance of more than 20%
of the Company's common stock in the aggregate to USM at a discount to market
price as required by the rules of corporate governance promulgated by the NASDAQ
Small Cap Market ("NASDAQ"), or (ii) the issuance of a waiver by the NASDAQ
excepting the Company for compliance with this rule. USM also agreed that it
would continue to provide the Company with financing going forward as further
inducement to consummate the settlement agreement set forth above.
Due to the fact that the Company had already expended significant monies to
conduct a proxy solicitation for its annual meeting scheduled on October 12,
1998, the Company made application to NASDAQ for a waiver of the meeting
requirement described above.
On October 19, 1998, the Company made a formal application to NASDAQ in
accordance with Rule 4310(C)(25)(H)(ii) of the NASDAQ Stock Market for a waiver
of the requirement that the Company call a meeting of its stockholders to
approve the issuance of over 20% in the aggregate of its stock to USM at a price
below market price. The rule allows for a waiver of this requirement when, among
other things, a delay in securing stockholder approval would seriously
jeopardize the financial viability of the Company. On or about October 24, 1998,
the NASDAQ Stock Market contacted the Company and indicated that it was inclined
to deny the Company's application unless additional information was submitted
for review. The Company thereafter withdrew its application and re-opened
negotiations with USM. Although the Board of Directors of the Company has
approved the issuance of 927,757 shares of common stock of the Company, such
shares have not been issued. The Company however, continues to be in default of
the USM Note and has not, as of the date hereof, repaid any of the amounts owed
to USM. The Company
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and USM are continuing negotiations with respect to the outstanding monies owed
to USM and USM is still funding the Company.
Notwithstanding, the termination of the Martucci Letter of Intent, the Company
and Martucci have continued negotiations regarding a possible business
combination between the Company and the Martucci Companies on an informal basis.
However, there can be no assurance that any definitive agreement will be reached
between the parties regarding future acquisitions. Moreover, since USM and
affiliates have been the primary source of funding to the Company as of late,
there can be no assurance that the Company will have adequate funds available to
repay the USM Note. In the event that the Company should default on its
obligations to repay the USM advances, USM may foreclose on the assets securing
the USM Note. Such foreclosure actions by USM would have a material adverse
effect on the future operations of the Company and on the Company's ability to
explore the Franklin Mines.
Operations at the Company's Mining Properties
(1) Compliance with DMG regulations at the Franklin Mines and Franklin Mill.
During fiscal year 1997, the majority of the remedial work and the technical
revisions to the Franklin Permit consisted of work relating to correcting
violations cited against the Company in 1996. Specifically, the Company (a)
instituted a plan for quarterly groundwater monitoring which included surface
water and groundwater sampling plans, (b) took steps to correct the run-off
problem associated with the Tailings Pond disposal area (the "Disposal Area"),
(c) reclaimed the Lined Tailings Ponds located adjacent to the Franklin Mill
(the "Lined Tailings Pond"), (d) commenced preliminary plans for the
installation of a paste backfill system for tailings disposal and (e) made
application to the DMG for expansion of the permitted area at the Franklin Mines
and Franklin Mill to allow for performance of certain of the remediation work
outlined above. Upon completion of paste backfill work, it is anticipated that
the Company will possess substantial tailings disposal capacity consistent with
its production plans. However, should additional disposal areas be required, the
Company may make application to the DMG to reopen the other tailings ponds which
it has recently reclaimed. Since the reclamation work relating to the Lined
Tailings Ponds has been completed, the Company may also make application to the
DMG to reduce the $252,000 reclamation bond currently posted with the DMG.
In addition to the work performed in connection with the Franklin Permits, the
Company submitted to the DMG an environmental protection plan (the
"Environmental Protection Plan") which complies with the provisions of the
Mineral Rules and Regulations of the MLRB of Hard Rock, Metal and Designated
Mining Operations. The Environmental Protection Plan includes an emergency
response plan for designated chemicals used on site and appropriate measures
consistent with the recommendations by the Colorado Division of Wildlife for the
Protection of Wildlife to prevent damage to area wildlife from designated
chemicals, toxic or acid forming materials and acid mine drainage. The
Environmental Protection Plan was accepted by the DMG.
On January 31, 1997, the Company received approval from the DMG of its March 6,
1996 amendment application to the Franklin Permit. The notification of approval,
received by the Company on February 28, 1997, increased the total permitted
area, revised the mining plan to include the processing of ore from the Mogul
Mines, alters the milling process, propose tailings paste disposal, and modifies
the surface water control plan. All of the terms of the amendment approved by
the DMG were incorporated into the Franklin Permit and made a part thereof.
However, the DMG set forth certain conditions to its approval which required (i)
the submission of a final design for tailings disposal facilities in the form of
a technical revision to the DMG for the Surface Water Control Plan not later
than April 15, 1997 and (ii) the completion of closure plans for the Lined
Tailings Pond by spring runoff and in any event no later than April 15. Finally,
the schedule for the completion of the closure plan for Tailings Pond 5 will be
determined by the DMG during fiscal year 1997 and will be dependent on the
Company's tailings disposal plan which is to be submitted to the DMG in 1997.
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In the spring of 1997, the region in which the Franklin mining properties are
located was subject to severe weather patterns, which caused flood conditions in
the area. As a result, the Company was unable to complete its work at the
Franklin Mines within the prescribed time frame. Given the oral agreement with
the DMG to grant the Company latitude with respect to the completion of its
projects, the Company failed to make any formal application to the DMG for an
extension of time to complete the Surface Water Control Plan and closure plans
for the tailings ponds. As a result of this oversight, the Company received a
formal Notice of Violation and Cease and Desist Order from the DMG for failure
to fully complete these projects as prescribed by the DMG in its January 31,
1997 approval.
Thereafter, installation of the Surface Water Control Plan, and the closure and
reclamation of the tailings ponds were completed and the Cease and Desist was
automatically lifted without further action by the Company or administrative
proceedings by the DMG. As of the date hereof, the Company is in compliance with
all applicable regulations and no violations exist against the Company or its
properties.
During fiscal year 1998, the Company continued its remedial rehabilitation work
at the Franklin Mines and Mill in anticipation of commencing operations.
Specifically, the Company continued with its water monitoring programs and
commissioned additional reports and research into claims located on the Franklin
Mining properties. The Company has through fiscal year 1998, and will continue,
through fiscal year 1999, to take all steps necessary to bring the Franklin Mine
and Mill into operations.
(2) Newmineco and the Mogul Mine.
On September 26, 1996, the Company acquired a 20% interest in Newmineco from
Gems for a purchase price of $600,000 evidenced by an interest only note bearing
interest at 9.5% per annum (the "Newmineco Note"). Newmineco was formed for the
purpose of exploiting certain rights to a mining property known as the Mogul
Mine evidenced by a Lease dated March 18, 1996, entered into between Island, as
lessee, and the Ruggs (McCollum being the lessor/optionor as to the Muscat Lode
claim only) as lessor (the "Rugg/Mogul Lease"). The Rugg/Mogul Lease was
contributed to Newmineco prior to the acquisition by the Company of 20% of the
LLC.
On February 7, 1997, Gems notified the Company that it had assigned its interest
in the Newmineco Note to certain third parties, including John Miner, a
consultant to the Zeus Joint Venture. Thereafter, on February 10, 1997, the
Company notified Mr. Miner, as special agent to the assignees that it had
elected to convert the principal due on the Newmineco Note into Common Stock of
the Company in accordance with the terms therein. An aggregate of 307,692 as
adjusted shares were issued to the assignees in full satisfaction of the
Newmineco Note.
The Company continues to maintain a 20% interest in Newmineco, but has decided
to abandon its plans to participate in the exploitation of the Mogul Mine. For
more information regarding the disputes related to Newmineco and the Mogul Mine,
See Item 3 Litigation-Durango Litigation.
(3) The Gold Hill Mill
The Gold Hill Mill is located within close proximity to the Franklin Mines and
Mill and it was hoped that the acquisition of the facility would afford the
Company the opportunity to expand its geographic reach into the Gold Hill Mining
region. In July, 1996, the Company acquired the Gold Hill Mill in hopes of
increasing its capacity to mill ore mined from the Franklin Mines and possibly
other mining properties in the region.
However, in 1997, it became clear that the regulatory climate made it
economically unfeasible to bring the Gold Hill Mill into operation. Recent
changes in the laws governing milling and mining in Boulder County restrict the
use of milling facilities located in Boulder County to processing ore recovered
within the county only. Therefore, the laws preclude the Company from using the
Gold Hill Mill for processing ore from the Franklin Mines. Management does not
believe that any mines located in Boulder County are operating at this time.
Therefore, the Company decided to divest itself of this property during fiscal
year 1998.
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On or about June 5, 1998, the Company sold the Gold Hill Mill to Denver East
Machinery Company ("Denver East") for an aggregate purchase price of $1,075,000.
Payment of the purchase price was made by transferring certain property and
equipment owned by Denver East having a fair market value of $725,000 and the
issuance of a demand note in the aggregate principal amount of $350,000 (the
"Denver East Note"). The Denver East Note is payable on demand by Com, Inc. and
will accrue interest at a rate of 14% per annum. As of the date hereof, the
Company has not made demand for payment under the terms of the Denver East Note.
Other Matters
On or about June 12, 1997, the Company filed with the Securities and Exchange
Commission (the "Commission") a Registration Statement on Form SB-2 (the
"Registration Statement") on behalf of certain shareholders of the Company for
the purpose of registering an aggregate of 638,076 as adjusted shares. The
Company was obligated to file the Registration Statement on behalf of these
shareholders pursuant to certain contractual agreements granting such persons
demand and/or piggyback registration rights.
After receiving comments from the Commission on or about July 18, 1997, the
Company received requests from the majority of the Selling Shareholders to
withdraw their shares from the Registration Statement because, assuming all
other provisions of Rule 144 were complied with, the shares may be sold pursuant
to Rule 144.
The Commission consented to the withdrawal of the Company's Registration
Statement on May 5, 1998. For further information regarding the Registration
Statement, See Items. Legal Proceedings-Securities and Exchange Commission.
The Company has not conducted any significant commercial mining operations and,
as a result, had not generated any significant revenues through December 31,
1998 from operations at the Franklin Mine. Therefore, the Company remains in the
development stage. The Company, however, is hopeful that economically viable
commercial mining operations at the Idaho Springs mining facilities can be
conducted in the future. Moreover, the Company continues to work closely with
Colorado state mining regulatory agencies in preparation and anticipation of
full-scale operations at the Franklin Mines and Franklin Mill.
Water, Utilities and Refining Contracts
The Company has historically purchased power from Public Service Company of
Colorado at its published rates. Moreover, the Company's management believes
that sufficient water for present and future operations may be obtained from the
City of Idaho Springs at its normal rates or from other nearby sources at
reasonable rates. The Company's management does not anticipate any difficulty in
obtaining sufficient water and power sources for its future mining and milling
operations.
In the past, the Company has entered into refining agreements with Zinc
Corporation of America and ASARCO Incorporated for the sale and refining of
lead, zinc and copper concentrates produced from the Franklin Mine in Colorado.
The Company's management expects that at such time as it recommences active
mining and milling operations, the Company will not have difficulties in
renewing or renegotiating contracts with either ASARCO or Zinc Corporation of
America or entering into new contracts with their competitors.
Employees and Technical Consultants
As of December 31, 1998, the Company had no full-time employees. The Company's
executive officers serve as needed on a part-time basis for no compensation.
With respect to operations at the Franklin Mines and Franklin Mill, technical
personnel and other qualified consultants and experts are retained on a contract
or consulting basis. Management anticipates that as the Company's business
develops, additional technical administrative staff may be hired as well as
qualified geological and technical consultants on an as needed basis.
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Item 2. Properties
Glossary of Terms
Assay A chemical evaluation of metal content
conducted after mining ore.
Backfill Mine waste which is disposed of
underground in a formerly mined area.
Chacopyrite A mineral containing copper, iron and
sulphur.
Cyanidation and Pulp Recovery The process by which gold is extracted
in the milling process through the use
of cyanide.
Development Stage Company Companies engaged in the preparation of
an established commercially mineable
deposit or reserve for its extract which
are not in the production stage.
Dip An angle measured in degrees from the
horizon.
Fault A fracture in the earth through which
mineralizing solutions may rise and form
a vein.
Fault System A large regional fracture.
Footwall That portion of the vein which is
located below.
Galena A mineral containing both lead and
sulphur.
Gravity Concentration Minerals concentrated by application of
devices employing the force of gravity.
Hanging wall That portion of the vein which is
overhead.
J.L. Emerson Fault A large fracture in the earth' s crust
located in the Franklin Mine area.
Laramide Period A period in history dating back
approximately 70 to 90 million years
ago.
Main Trunk A highly mineralized portion of the J.L.
Emerson fault located on the properties
constituting the Franklin Mines.
Massive Sulfides High quality ore.
Microcline gneiss A type of rock found at the Franklin
Mine.
Mill The plant facility where the metals
constituting the ore are removed from
mined rock.
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Mine Workings The areas where ore is being mined.
Mineral Concentrate A mill product where the rock particles
have been removed from the metallic
minerals.
Mineralized Rock Rock which contains the minerals to be
mined.
Monzonite Intrusive rock types containing large
amounts of quartz and often the
progenitor of metallic, mineralizing
solutions.
Ore A metallic or non-metallic mineral that
can be mined from the earth and sold at
a profit.
Ore Conduit An opening through which mineralizing
solutions can rise.
Ore Reserves Minerals located in the ground whose
existence is governed by varying degrees
of probability.
Ore Shoot A body of ore.
Orogeny An event causing a major upheaval or
reshapement of the earth's crust, such
as volcanism, mountain building or ore
formation.
Paste Backfill Procedure in which backfill is treated
with certain chemicals to solidify the
same to prevent seepage
Pegatites A type of rock found in the Franklin
Mine.
Pillars Unmined sections of ore in a stope.
Pre-Cambrian age A time period in history dating back
approximately 600 million years ago.
Probable (Indicated) Reserves Reserves for which quantity and grade
and/or quality are computed from
information similar to that used for
proven reserves, but the site for
inspection, sampling and measurement are
farther apart or are otherwise less
adequately spaced. The degree of
assurance, although lower than that for
proven reserves, is high enough to
assume continuity between point of
observation.
Production Shaft The device through which ore is hoisted
from the mine and the area through which
materials are lowered into the mine and
miners enter and exit the mine.
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Proven (Measured) Reserves Reserves for which (a) quantity is
computed from dimensions revealed in
outcrops, trenches, workings or drill
holes; grade quality are computed from
the results of detailed sampling and (b)
the sites for inspection, sampling and
measurement are spaced so closely and
the geologic character is so well
defined that size, shape, depth and
mineral content of reserves are well
established.
Pyrite A mineral containing both zinc and
sulphur.
Raise A tunnel driven upward from a level.
Refractory A difficulty in separating value metals
or minerals from the host rock.
Reserves That part of a mineral deposit which
could be economically and legally
extracted or produced at the time of the
reserve determination.
Schist, granite gneiss A type of rock found in the Franklin
Mine.
Selective Flotation Minerals concentrated in a selected
mineral group in the mill.
Shaft A vertical tube-like opening whereby
miners enter the mine.
Slurry A mixture of ground rock or minerals in
water.
Slimes Exceedingly fine particles mixed with
water.
Sphalerite A mineral containing both zinc and
sulphur.
Strike In a horizontal direction.
Stope The area of the mine where miners
extract mineral deposits from the mine.
Tailings Waste which is produced by the Mill.
Tailings Pond The location where mill wastes are
deposited.
Telluride A mineral containing tellurium often
found with quantities of gold and/or
silver and sulphur.
Tennentite A complex mineral containing copper,
antimony or arsenic, often containing
large amounts of silver.
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Tertiary Period A time period in history dating back
approximately 40 to 70 million years
ago.
Vein A fracture in the earth's crust where
minerals have been deposited.
Winze A tunnel driven downward from a level.
Colorado Mining Properties
The property which constitutes the Franklin Mines consists of (i) 100% leasehold
interest in the mineral rights to 28 claims comprising approximately 322 acres
evidenced by the Hayden/Kennec Leases and (ii) an additional 23 claims leased
and/or purchased by the Company covering less than 100% of the mineral rights
comprising approximately 20 additional acres, for a total of 51 claims over 340
acres. Such properties include all improvements made by the Company thereon,
including the Franklin Mill capable of supporting up to a 150 ton per day
operation in its present state. The Company does not intend to exploit any
claims for which it holds less than a 100% interest. Management believes that it
currently maintains adequate insurance for all of its mining properties.
Hayden/Kennec Leases
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 was 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 expiration date, the Company 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 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 13th, 1998 (the "Extended Expiration Date"). As of the date
hereof, USM has not consummated the transaction contemplated by the Hayden-USM
Purchase Agreement; however, it is expected that the transactions will close
upon delivery by Hayden of clear title to the interests being conveyed to USM.
USM has continued to make royalty payments to Mrs. Hayden as required by the
Hayden-USM Purchase Agreement. As of the date hereof, the Company has been
advised by USM that the Hayden-USM Purchase Agreement is in full force and
effect.
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
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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.
Location and Access
The Franklin Mines and Franklin Mill are located in Clear Creek County, Colorado
approximately 2.7 miles north of the town of Idaho Springs, which is accessible
from Interstate 70 approximately 33 miles west of Denver. From Idaho Springs, a
county maintained gravel road connecting Idaho Springs with Central City in
Gilpin County passes within 1/4 of a mile of the Franklin Mine facilities and
offices. A minor roadway, also maintained by the County, allows access to the
Franklin Mine within 1/8 of a mile. The mine location is accessible year round,
except in the case of a major snowstorm in winter months.
Ore Deposition in the Area
Most of the ore deposition in the area where the Franklin Mine is located has
been credited to the period of the Laramide Orogeny. Ore extracted from the
region included gold, silver, copper, lead, zinc, and uranium. By far the
largest single metal values were in gold, with silver being a distant second.
Though many of the smaller veins located in the area pinched out at moderate
depth, some have shown strong mineralization at greater depths.
The ore deposits are of four types: (I) pyritic gold ores; (ii)
galena-sphalerite ores; (iii) composite (pyrite-galena-sphalerite) ores and (iv)
telluride ores. Pyritic gold ores are chiefly associated with pyrite,
chalcopyrite, and tennentite. The "composite ores" are believed to be the result
of two or more periods of mineralization, with pyritic minerals first and
galena-sphalerite second; mineral content varies widely with the relative
percentage of the different types of ore present. Telluride ores are present
mostly in the Northeast corner of the district, but some telluride ores have
been noted elsewhere.
Geology of the Franklin Mines
The rocks most commonly seen in the Franklin Mines are Pre-Cambrian age granite
and microcline gneiss. Tertiary Period, monzonite, the most common of which is
quartz monzonite, can be seen on the ninth level and are reported from lower
levels in the Gem vein or Gem workings of the Franklin Mines. The general strike
of the system is N75 degrees W with dips varying from 45(degree) to 79(degree).
The structure of the mines is controlled by the J.L. Emerson Fault system that
runs in a west-northwest direction across the whole property and beyond.
Secondary to the J.L. Emerson Fault are multitudes of small fissure veins that
are parasitic to the main break. Some of these veins contribute to considerable
mineralization where they intersect the J.L. Emerson Fault structure. These
mineral bodies are observable in several locations in the Franklin 73 mine and
the Gem mine, one measuring 22 feet wide and 60 feet in length. It has been
reliably reported that some of the large stopes mined in the Gems workings
measured up to 105 feet in width.
Estimated Ore Reserves
The mineral lodes of the Franklin Mines consist of these associated with the
Gem, the Freighter and the Franklin mines and those minerals generally
associated with the "Main Trunk" of the J.L. Emerson Fault. No reference is
being made regarding the mineral potential of structures situated adjacent to,
or off the "Main Trunk".
Sampling by the channel sample method was conducted during the period of 1975
through 1993 with assaying provided by the Franklin and other accredited assay
laboratories. Assays were also obtained from the old Gem Mining Co. mine assay
map, dated 1921 (the "Gems Assay Map"). The sampling process was carried out at
right angles to the strike of the veins. Blocks were sampled on three or four
sides and at times within by raise or winze. Those blocks, which were
extensively mined, were entered where possible through open stopes with both
pillars and "backfill" being sampled.
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The Franklin mineral structure is generally a tabular structure in shape and
consisting of several parallel to sub-parallel veins, striking in a westerly
direction and dipping at 45(degree) - 79(degree) north. Its depth is unknown.
The J.L. Emerson Fault is a large regional structure, striking east to west and
having an irregular plain that dips to the north at 45 to 79 degrees. The J.L.
Emerson Fault is associated throughout with a series of parallel to sub-parallel
sigmoidal shaped fractures that may focus east or west on the principal fault
plain. These fracture patterns are found on nearly all levels and represent
important centers of mineral concentration. The J.L. Emerson Fault consists of
two main parallel to sub-parallel mineralized fault fractures, the so called
"footwall" and "hanging wall" veins. Each of the principal veins has
historically contributed to ore production in the Gem vein. A second set of true
fissure veins of a later date and striking northeast and southwest interdict the
J.L. Emerson Fault at several points, but does not cross. These veins are of
unknown economic potential.
The mineral structures in the Franklin Mines are often large, but poorly
defined. It was suggested that a core-drilling program be conducted at promising
locations to determine potential mineral reserves therein. It was believed by
management and Gems, its joint venture partner, that much unexplored mineral
potential exists in the Franklin Mine.
There is no assurance that additional reserves exist in other mineralized
structures in the Franklin Mines until a systematic core-drilling program
extends the mineralized zone(s) and a comprehensive economic evaluation based
upon that work concludes economic feasibility.
As filed with Securities & Exchange Commission; Summary of Reserves Report by
Gifford A. Dieterle, Geologist, dated December 7, 1993.
In place 173,486.60 Tons
Broken ore (in stopes or on surface) 4,700.00 Tons
Ore Mined or Milled since 1987 8,100.00 Tons
---------------
186,286.60 Tons
Average Grade of Gold: .315 ounces per ton
Average Grade of Silver: .740 ounces per ton
The metallurgical recovery of gold from ore is estimated at 90%, distributed as
follows:
56% in lead concentrate
31% in pyrite concentrate
3% in zinc concentrate
The metallurgical recovery of silver from ore is estimated at 90%,
distributed as follows:
70% in lead concentrate
15% in zinc concentrate
5% in pyrite concentrate
As of the date hereof, the Company has not received any information that would
require modification of the above table.
Operations.
The successful conclusion of the paste back fill testing program will provide
the Company with adequate tailings disposal and will bring the Company close to
the commencement of operations. The Company is hopeful that it will commence
rehabilitation before the end of the second quarter of 1999 by initially
bringing to the surface 8000 tons of ore existing at the 5 level tunnel via the
Freighters Friend Shaft. The
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Company has been approached by and is pursuing ventures with two local mining
operators to mill ore mined from other mining properties located in the region
at the Franklin Mill.
The Company retained Walsh Environmental Scientists and Engineers, Inc., of
Boulder, Colorado in 1998 to oversee all environmental, compliance and
regulatory matters relative to the Franklin Mines and Franklin Mill and has
purchased the necessary equipment to conduct paste back fill testing with regard
to tailings disposal on the property. In mid 1998, the Company determined that
the remaining work to be conducted on the Franklin Mining properties could be
handled more economically by retaining a qualified consultant to oversee such
activities. Therefore, the Company no longer engaged Walsh for such purposes.
The Company's consultant continues to oversee activities at the mining site and
to conduct all water monitoring and other procedures required to keep the
Company's permits in full force and effect.
Since the acquisition of Gem's 82 1/2% of the Joint Venture in 1997, the Company
is now entitled to receive 100% of the profits from mining operations and will
assume full responsibility for management of the Franklin Mining Properties.
Management believes that an initial capital requirement of approximately
$750,000 will be required to bring the mill into operations and possibly reach
through to the discovery program of the multiple levels of the Franklin Mine.
USM and its affiliates have verbally pledged to continue to provide financing to
the Company on an as needed basis through December 31, 1999: this financing is
in addition to the USM Advances made in 1997 and 1998. Other alternatives such
as private placements, loans, or public offerings may be considered for future
operating capital.
Mill/Metallurgy
The Franklin Mill, was designed to recover and concentrate metallic minerals by
two historic methods; selective flotation and gravity by table and jig. Both
systems were operated in a continuous circuit. After a series of upgrades in
1982, the Franklin Mill currently has a daily processing capacity (operating for
a 24 hour period) of approximately 150 tons of ore. In the past, the Franklin
Mill operated on an eight-hour schedule and processed approximately 30 tons of
ore during that time interval.
The Franklin ore is refractory and therefore difficult to separate. Pyrite (iron
sulfide) constitutes approximately 23% of the weight of the ore. Approximately
35% of the gold content of the ore remains locked in the pyrite as refractory
gold and is not recoverable by ordinary means. In 1993, a new metallurgical
process was introduced to attempt to extract gold from the pyrite concentrates.
This process attempted to break down the pyrite minerals by oxidation and
thereby free the contained refractory gold. The procedure involved the use of
standard banks of flotation cells (48"), pyrite slurry (30%), air, and
agitation. At a later stage pre-processing of the pyrite by further milling
occurred. Processed pyrite was subjected to cyanidation and carbon-pulp recovery
of gold. The process was initially reported to be successful by the then joint
venture operator with recovery of 85% of gold. However, later testing indicated
that little or no gold could be recovered through this process.
Standard milling procedures are intended for newly mined ore with selective
flotation of; a) lead, silver, gold and b) zinc and c) gravity concentration of
gold bearing pyrite. Gold bearing pyrite concentrates will be taken off site to
a copper smelter where gold and silver will be extracted. Average recovery of
gold in lead concentrate is estimated at approximately 60%; pyrite concentrate
35%; slimes 5% (lost).
In the past, the Franklin Mill operated on a limited schedule while exploration
and development was taking place. While the Franklin Mill has not operated with
respect to ore milling, limited crushing activities took place in early 1996 for
the purpose of crushing bulk test ore samples prior to assay. Thus, prior
milling and the crushing recently done at the Franklin Mill can be characterized
as "exploratory" in nature.
Completed in 1992, the Gold Hill Mill is a fully permitted modern milling
facility. With the exception of test milling approximately 4,000 tons of ore by
the previous owner, the Gold Hill Mill has not been operated since its
completion in any commercial operations. On June 2, 1998 the Company sold its
interest in the Gold Hill mine to the Denver East Company.
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Offices of the Company
The Company maintains its executive offices, consisting of approximately 500
square feet, at 76 Beaver Street, Suite 500, New York, New York. In 1998, the
Company re-negotiated its oral agreement and now pays a monthly rental of $3,500
for the office space, secretarial and other services provided to the Company
pursuant to an oral agreement with a non-affiliate. The Company also maintains
an office on site at the Franklin mine in Idaho Springs.
The Company's management anticipates this space will service the Company's needs
for the foreseeable future and that, in the event such space should become
unavailable in the future, the Company will be able to lease these or other
suitable facilities on a reasonable basis.
Item 3. Legal Proceedings
Convertible Debentures
On June 1, 1994, the Company advised the Transfer Agent/Trustee that the Company
was not in compliance with certain of the terms of the indenture (the
"Indenture") relating to the Company's 12 1/4% Convertible Debentures (the
"Debentures") in that it had not maintained current filings with the Securities
and Exchange Commission (the "Commission") as required. Accordingly, the
Transfer Agent/Trustee was instructed not to convert any of the Debentures into
Common Stock of the Company until such time as the Company notified the Transfer
Agent. The Company failed to make required sinking fund payments in 1994 and was
unable to pay the principal balance of the Debentures due on December 31, 1994
resulting in default under the terms of the Indenture.
Although the Company was in default, it agreed to continue to make quarterly
interest payments to the Debenture Holders during fiscal year 1995 until such
time as the principal amount of the Debentures could be paid in full. It was
anticipated that the Company would have the funds available to make such
payments by December 31, 1995. The Company made the first quarterly interest
payment due on the Debentures in 1995 but has failed to make any additional
payments with respect to such interest thereafter.
On or about December 1995, all but 1,000 of the Debentures agreed to extend the
maturity date of the Debentures to December 31, 1996; however, the Company was
unable to make any principal or interest payments since March 31, 1995.
In September, 1997, certain of the Company's 12 1/4% Convertible Debenture
holders, including the Hopis Trust (the "Plaintiff Debentureholders") 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 Debentureholders 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
Debentureholders agreeing to pay the Judgement plus certain additional costs in
the event that the Company fails to pay the Judgment and USM consummates the
Transaction with the Company. In the event that USM did not consummate the
Transaction by July 12, 1998, USM agreed to pay the Plaintiff Debentureholders
$5,100 for their agreement not to enter the Judgment against the Company or
pursue the inquest. Plaintiff Debentureholders agreed not to enter the Judgment
against the Company until July 12, 1998 or until USM notifies them that it will
not pursue the Transaction.
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On or about April 6, 1998, Martucci terminated his letter of intent to
consummate the 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 Judgement been entered. There can be no
assurance, however, that the Judgement will not be entered and the Company will
be required to pay the amount of the Judgement, including any costs, interest
and penalties related thereto.
The continued default 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. Management remains hopeful that payment or, in the
alternative, commencement of settlement negotiations, will delay the
commencement of any legal action until the Company can make the appropriate
arrangements to repay the Debentureholders.
Golder Litigation
On or about February 5, 1996, Bradley, Campbell, Carney & Madsen, P.C., Colorado
counsel to the Company, Gems, Zeus and Newmineco ("BCCM") entered into a
contract with Golder Associates, Inc. ("Golder"), pursuant to which Golder
agreed to perform certain services at the Mogul Mine (the "Mogul Tunnel
Contract"). At the time of the Mogul Tunnel Contract, BCCM allegedly entered
into said contract as an agent of Durango, the lessee of the Mogul Mine at that
time.
On or about February 5, 1996, BCCM entered into a second contract with Golder,
pursuant to which Golder agreed to perform certain services at the Franklin
Mines and Franklin Mill pertaining to 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.
After several months of negotiation, the Company reached a settlement agreement
with Golder and BCCM pursuant to which the Company agreed to pay an aggregate
amount of $200,000 in exchange for discontinuance of the litigation and a
general release of the Company for any further liability. Payments under this
settlement agreement were to be made on or before December 31, 1998.
Notwithstanding, this
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settlement agreement was never consummated and the parties have recommenced
settlement negotiations. There can be no assurance that final settlement
agreements will be executed or that the Company will be successful should this
matter proceed to arbitration. The Company estimates that its portion of the
liability in this matter is approximately $135,000 in the event that the
settlement should be consummated.
Environmental Matters:
As of the date hereof, the Company has no violations against it with respect to
the Franklin Mines and Franklin Mill. While there are no outstanding violations
against the Company at this time, there can be no assurance that the Company
will be able to adequately comply with the conditions set forth in its permit
approval or that future violations will not arise and that such violations will
not lead to interruptions in operations at the Franklin Mines or Franklin Mill.
For further information regarding the Permits, see Item I, Business of the
Company - Operations at the Company's Mining Properties.
Durango Litigation
On or about February 1, 1996, Newmineco, Island, Gems and Zeus entered into a
series of Transactions with Durango, Thames Hartley, the president of Durango
("Hartley") and J. Wayne Tatman ("Tatman"), an agent of Durango and Hartley and
president of Consolidated Milling, Inc. ("Consolidated Milling") to develop
certain mining properties, including the Mogul Mines. For further information,
see Item 1, Business of the Company-Newmineco. On or about March 1996, Island
acquired the Rugg/Mogul Lease through a Novation Agreement. The Rugg/Mogul Lease
was then renegotiated and assigned to Newmineco. Thereafter, Island and Gems
notified the Company that Tatman, Hartley and Durango and certain other parties
to the Newmineco venture breached their agreements and as a result, Island
terminated certain venture agreements involving these persons. Island thereafter
assigned its interest in Newmineco to Gems. For more information on the status
of the Rugg/Mogul Leases, see Item 2. Properties Rugg/Mogul Leases; for more
information on the relationship of the parties, see Item 1. Business-Operations
at the Company's Mining Properties.
In June, 1996, Durango and/or Hartley served a series of Notices of Intent to
Lien properties owned or leased by each of Gems, Island and the Company,
including the Gold Hill Mill. Thereafter, on or about October 15, 1996, James A.
Wood and David C. Sutton, each the owner of claims located on the properties
comprising the Mogul Mines (the "Delaware Claims" and the "Bonanza Claims",
respectively) and Durango, as the proported lessee of such claims, commenced an
action in District Court, Boulder County, Colorado, against the Ruggs, Island,
Newmineco, the Company and any other unknown parties of interest to quiet title
to each of the Delaware Claim and Bonanza Claims (hereinafter the "Disputed
Claims"). The complaint further alleges that the defendants have removed ore
mined from the Disputed Claims and that, as a result of trespass and conversion
of certain equipment of Plaintiff Durango, plaintiffs have been further damaged
in the amount of approximately $800,000. In addition to the actions for quiet
title and for the adjudication of the ownership of the disputed Claims,
Plaintiffs requisite damages for conversion of Plaintiff Durango's equipment,
seeks a full accounting of the ore removed from the premises and request all
other damages, costs and expenses, including attorney's fees incurred with
respect to this dispute.
In September 1998, the parties mutually agreed to withdraw their respective
claims against the other, the result of which would leave no pending lawsuits
between the parties. In a letter, dated September 22, 1998, plaintiff's attorney
further agreed that plaintiffs would dismiss whatever other actions may be
pending against the Company.
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.
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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 10 consecutive
days, thereby bringing it into compliance with NASDAQ rules.
While the Company is currently in compliance with the minimum bid price
requirement, there can be no assurance that in the future the company's common
stock will, in the future to able to maintain such compliance. In the event that
the Company cannot maintain compliance with the maximum bid price requirement
the Company, may, in the future, be subject to delisting causing the Company's
common stock to no longer be listed for trading on the NASDAQ Small Cap Market.
However in such event, 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
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resale the quoted bid price because a dealer or group of dealers may control the
market in such securities and may set prices that are not based on competitive
forces. Furthermore, at times there may be a lack of bid quotes which may mean
that the market among dealers is not active, in which case a holder of Common
Stock may be unable to sell such securities. Because market quotations in the
over-the-counter market are often subjected to negotiation among dealers and
often differ from the price at which transactions in securities are effected,
the bid and asked quotations of the Common Stock may not be reliable.
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. The Company intends to vigorously defend
this suit and aggressively pursue its claims against Redstone.
Item 4. Submission of Matters to a Vote of Security Holders
On May 21, 1998, the Company held a special meeting of stockholders to consider
a proposal to amend the Company's Certificate of Incorporation to reverse split
the Company's outstanding shares of common stock on a twenty-five for one basis.
Of the 3,955,173 shares entitled to vote at the meeting, 2,458,623 where
presented either in person or by proxy constituting a quorum for purposes of
conducting the business which was brought before the meeting. The Amended
Certificate of Incorporation we filed with the Secretary of State of Delaware on
October 16, 1998.
PART II
On October 12, 1998, the Company held its annual meeting of shareholders in New
Jersey at which time the shareholders (i) re-elected Mr. Waligunda and elected
William C. Martucci, Ronald Ginsberg and Robert W. Singer to the Board of
Directors of the Company (ii) approved an amendment to the Certificate of
Incorporation to change the name of the Company to "WCM Capital Corp." and (iii)
confirmed Lazar, Levine & Felix as independent auditors of the Company.
Of the 3.955,169 shares entitled to vote at the meeting, 2,458,623 were present
either in person or by proxy constituting a quorum for purposes of conducting
the business that was brought before the meeting. The following table sets forth
the matters brought before the shareholders, the number of votes cast for,
against or withheld, as well as the number of abstentions and broker non-votes,
if any, for each matter.
Matter For Against Abstain
Election of Bill Martucci
As a Director 2,411,706 46,917 ----------
Election of Robert
Waligunda as Director 2,443,750 14,873 ----------
Election of Ronald
Ginsberg as a Director 2,411,718 46,905 ----------
Election of Robert W.
Singer as a Director 2,411,714 16,476 ----------
20
<PAGE>
Amendment to Certificate
Of Incorporation for
Name change 2,434,302 16,476 7,845
Confirmation of
Independent Auditors 2,427,679 21,743 9,201
The Amended and Restated Certificate of Incorporation was filed with the
Secretary of State of the State of Delaware on October 16, 1998.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The principal U.S. market on which shares of the Company Common Stock (all of
which are of one class, $.25 per share) are traded on the small cap market on
the National Association of Securities Dealers, Inc. Automated Quotation System
(Symbol "WCMC"). For Information regarding possible delisting of the Company's
Common Stock. See Item 3. Litigation NASDAQ Delisting.
The following table sets forth the range of high and low bid quotes of the
Company's Common Stock per quarter since the beginning of fiscal year 1996 as
reported by the National Quotation Bureau (which reflects inter-dealer prices
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions). The following stock prices have been adjusted to
reflect a twenty-five for one reverse stock split which occurred on May 26,
1998.
High Low
Quarter Ended Bid Price Bid Price
March 31, 1996 $6.25 $4.00
June 30, 1996 $6.25 $2.25
September 30, 1996 $3.25 $1.50
December 31, 1996 $4.00 $1.50
March 31, 1997 $5.50 $4.00
June 30, 1997 $4.75 $4.00
September 30, 1997 $5.50 $4.00
December 31, 1997 $2.34375 $1.5625
March 31, 1998 $1.5625 $1.5625
June 30, 1998 $2.25 $1.5625
September 30, 1998 $1.50 $1.00
December 31, 1998 $.875 $.4375
As of December 31, 1998, the approximate number of recordholders of the
Company's Common Stock is 3,000 inclusive of those brokerage firms and/or
clearing houses holding the Company's Common Shares in street name for their
clientele (with each such brokerage house and/or clearing house being considered
as one holder). The aggregate number of shares of Common Stock issued and
outstanding is 3,955,169 as of December 31, 1998. No dividends on Common Shares
have ever been paid by the Company due to the lack of excess capital and the
Company does not anticipate that dividends will be paid in the foreseeable
future.
Sales of Restricted Securities
Upon the approval of the increase in the capitalization of the Company by its
shareholders on November 30, 1995, the Company was able to eliminate certain of
its liabilities by converting certain of its outstanding debt at the time into
Common Stock. In May, 1992, the Company entered into a Loan Agreement with Mr.
Anderson, an officer and director of the Company, Mr. Anderson's brothers,
Anderson Chemical Company and Mr. Carlo Sgrizzi, an unaffiliated individual and
Mr. Anthony DiMatteo (the "Anderson Loans")
21
<PAGE>
pursuant to which the Company borrowed an aggregate of $504,000 at an interest
rate of 3% above the prime rate of interest. Additionally, $450,000 of such
loans were entitled, under certain conditions, to a 1% interest in profits (as
defined in the Loan Agreement) of the Company, for each $50,000 of principal
amount held and, accordingly, the lenders held a total profit participation
interest of 9%. Such Loan Agreements were further amended in July, 1993, whereby
replacement notes were issued which permitted the conversion of the Anderson
Loans into shares of Common Stock of the Company at a conversion ratio of $.10
per share and granted certain demand an piggyback registration rights. The
Anderson Loans were convertible into a total of approximately 180,000 as
adjusted shares of Common Stock at each lenders option, including, all profit
interests which were convertible into 12,000 as adjusted shares for each 1%
profit participation interest.
In August 1995, Gems, as an assignee of Mr. DiMatteo, converted its 4% net
profit interest in the Company to which it has rights to receive under the terms
of a Loan Agreement, into 12,000 as adjusted shares per percentage point or
48,000 as adjusted shares of the Company. Such shares were issued to Gems on or
about August 18, 1995. In September, 1995, certain of the holders of the
Anderson Loans, other than Gems, agreed to convert their notes and accrued
interest thereon at a rate of $.078 per share which represents 50% of the NASDAQ
quoted price of the Company's shares for the last 3 months, the total amount of
principal and interest to be converted to be determined at the time of
conversion. Thereafter, on or about December 27, 1995, Gems was invited to
convert its notes on the same terms and conditions as the other holders, thereby
satisfying the Company's obligations under the Anderson Loans. The Company
issued such shares in reliance on an exception from registration afforded by
Section 4(2) under the Act.
The common stock issued pursuant to the conversion of the Anderson loans were
issued by the Company in reliance upon the exemption contained in Section 4(2)
of the Securities Act of 1933, as amended (the "Act"). The common stock was
issued to Mr. Anderson, a director and officer of the Company, certain of his
brothers, Anderson Chemical Corporation, a company which is privately owned by
Mr. Anderson and his brothers, Mr. DiMatteo, a former director and officer of
the Company and Mr. Sgrizzi, an associate of Mr. DiMatteo. No offering of common
stock was made to any other persons other than the aforementioned Lenders. Each
of the Lenders had full access to all documents, public filings, books, and
records of the Company and had opportunity to ask questions and receive answers
from representatives of the Company. Each Lender had a prior relationship with
the Company and understood the risk inherent in investment in the Company. Each
Lender represented that he/it acquired the stock for their own account, not with
a view of distribution thereof, and thoroughly understood and was willing to
bear all the risks related to ownership of the Company's securities.
In December, 1994, Island, Gems and the Company entered into a Binding Exchange
Letter Agreement (the "Exchange Agreement"), pursuant to which Island and Gems
would transfer to the Company, in a tax free exchange, assets having a value
equal to 270,000,000 shares of newly issued Common Stock or approximately 85% of
the Company. In the event that the Company was unable to perform its obligations
under the Exchange Agreement in a timely fashion, then the Company was obligated
to issue to Gems 240,000 as adjusted shares of Common Stock, or in the
alternative, pay a fee of approximately $1,500,000 to Gems (the "Upset Fee").
In September, 1995, the Company, Island and Gems entered into a settlement
agreement (the "Settlement Agreement") which acknowledged that the Transactions
contemplated by the Exchange Agreement were not timely consummated and in which
the Company agreed to either issue 240,000 as adjusted shares of its Common
Stock to Gems or pay the Upset Fee. The issuance of the Common Stock was
predicated upon the approval of the Company's stockholders of an increase in the
authorized capital of the Company from 50,000,000 to 100,000,000. In addition,
the parties further agreed to convert $249,600 advances made by Gems to the
Company into 128,000 as adjusted shares of Common Stock and to increase Gems
interest in the Joint Venture to 82.5%. On November 30, 1995, the shareholders
of the Company approved an increase in the Company's authorized capital stock
and in accordance with the Settlement Agreement, the Company issued to Gems and
aggregate of 368,000 as adjusted shares of Common Stock in reliance on an
exemption afforded by Section 4(2) under the Act.
22
<PAGE>
In December 1995, the Company commenced an offering pursuant to Rule 505 of
Regulation D of the Act of $1,500,000 principal amount of its 15% Secured Notes
(the "Notes") Convertible into Shares of Common Stock of the Company. Such Notes
were offered by the officers and directors of the Company to accredited
investors only, and had a maturity date of eighteen months from the date of each
Note so issued (the "Maturity Date"). The conversion rights under the Note
become effective on or after April 1, 1996. The Company terminated this offering
on February 5, 1996 after selling an aggregate of $400,000 of the Notes. During
the second quarter of 1996, all of the Notes issued in the fourth quarter of
1995 and the first quarter of 1996 were converted and the Company issued 171,790
as adjusted shares of Common Stock to such investors upon such conversion based
on the total balance of the principal and accrued interest outstanding on the
Notes equal to an aggregate amount of $418,740 at a conversion price of $2.4375
per share.
In late February, 1996, the Company commenced an offering of its Common Stock
through its designated officers and directors pursuant to Rule 505 of Regulation
D under the Act. The offering was made to both accredited and unaccredited
investors. Subscribers of the offering purchased the Common Stock at a purchase
price equal to 15% below the market price as quoted on NASDAQ at the close of
business prior to the date of such sales. Four of the six purchasers were
unaccredited. The Company raised approximately $202,600 and issued 38,137 as
adjusted shares of its Common Stock in connection with the offering.
On or about March 5, 1996, the Company issued to certain principals of Wolinetz,
Gottlieb & Lafazan, P.C., the former independent auditors of the Company
("WGL"), approximately 2,240 as adjusted shares of Common Stock of the Company
in satisfaction of outstanding accounting fees owed by the Company to WGL of
approximately $10,000. In December 1994, the Company changed its independent
public accountants to J.H. Cohn & Company. WGL had acted as the Company's
independent public accountants for approximately 19 years prior thereto and, as
a result had a prior relationship with the Company. No offering of common stock
was made to any persons other than those persons associated with WGL. As a
result of their relationship to the Company, WGL had access to all documents,
public records, books, and accounts of the Company and had opportunity to ask
questions of and receive answers from representatives of the Company. The
members of WGL understood the risk inherent in an investment in the Company,
acquired the stock for their own account, not with a view of distribution
thereof, and thoroughly understood and were willing to bear all the risks
related to ownership of the Company's securities. For more information
concerning WGL, See Item 8-Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure.
On or about April 18, 1996, the Company executed a promissory note payable to a
private lender in the principal amount of $60,000 and issued to lender 6,400 as
adjusted shares of Common Stock of the Company as further consideration for
advancing said loan. The common stock was issued by the Company in reliance upon
the exemption contained in Section 4(2) of the Act. The lender is an accredited
investor, as such term is defined in Regulation D under the Act, and had
purchased 15% Secured Notes Convertible into Shares of Common Stock of the
Company in an offering under Rule 505 of Regulation D under the Act in December,
1995 prior to advancing the loan to the Company. See in Item 5 Market for
Registrant's Common Equity and Related Stockholder Matters - Sales of
Unrestricted Securities for further information on the offering. No offering of
common stock was made to any persons other than the lender. By virtue of his
status as an accredited investor, the lender had adequate means for providing
for his current needs and had no need for liquidity of his investment in the
Company and has such knowledge and experience in financial and business matters
that the he was capable of evaluating the merits and risks of ownership of the
Company's common stock. The lender was given access to all information regarding
the Company, including all documents, public records, books, and accounts of the
Company and was able to ask questions of and receive answers from
representatives of the Company regarding the same. The lender understood the
risk inherent in an investment in the Company, was acquiring the stock for his
own account, not with a view of distribution thereof, and thoroughly understood
and was willing to bear all the risks related to ownership of the Company's
securities.
In July, 1996, the Company commenced an offering pursuant to Rule 505 of
Regulation D under the Act for the issuance of shares of Common Stock at a
purchase price of approximately $.15625 per share in
23
<PAGE>
exchange for certain notes, mortgages and other obligations of its affiliates
held by certain third party unaffiliated parties of the Company and Gems. At the
completion of the offering in July, 1996, the Company purchased obligations of
its affiliates having an aggregated principal balance of approximately
$1,400,000 through the issuance of approximately 374,677 as adjusted shares of
Common Stock and thereafter transferred such debt instruments and obligations to
COM, Inc., in exchange for an equivalent reduction in the principal amount of
the Gold Hill Note and approximately $191,875 through the issuance of 49,120 as
adjusted shares of Common Stock and thereafter transferred such debt instruments
and obligations to Gems in exchange for an equivalent reduction in certain
intercompany loans from Gems to the Company.
In Late July 1996, the Company commenced an offering of it Common Stock to
accredited investors only pursuant to Rule 505 of Regulation D under the Act
during which Stires & Co. acted as selling agent on behalf of the Company. The
offering was on a best effort basis and the selling agent was to receive a
commission of 5% of the aggregate gross proceeds to the sale of the Common Stock
to investors. In addition, the Company agreed to issue to the selling agent
warrants to purchase 5% of the total shares of Common Stock sold in the
offering. Due to market conditions at the time of the offering, the selling
agent was only able to sell 32,000 as adjusted shares of Common Stock of the
Company and raised $100,000. The offering was terminated on September 15, 1996.
Also in July 1996, the Company issued 40,000 as adjusted shares of Common Stock
to a former officer and director of the Company in satisfaction of a finder's
fee owed to Mr. Horing in connection with the formation of the Zeus Joint
Venture. 21. The common stock issued in to Mr. Horing was issued in
consideration of an outstanding finder's fee due to Mr. Horing in connection
with the formation of the Zeus Joint Venture. The common stock was issued by the
Company in reliance upon the exemption contained in Section 4(2) of the Act. Mr.
Horing is a former officer and director and had acted as legal counsel to the
Company for approximately 7 years. Mr. Horing resigned his position with the
Company in June 1994; however, he continued to maintain his relationships with
and had assisted current management through 1996. No offering of common stock
was made to any persons other to Mr. Horing. As a result of his relationship to
the Company, Mr. Horing had access to all information regarding the Company,
including all documents, public records, books, and accounts of the Company and
was able to ask questions of and receive answers from representatives of the
Company regarding the same. Mr. Horing understood the risk inherent in an
investment in the Company, was acquiring the stock for his own account, not with
a view of distribution thereof, and thoroughly understood and was willing to
bear all the risks related to ownership of the Company's securities The shares
were issued in accordance with an exemption from registration afforded by
Section 4(2) under the Act.
On August 28, 1996, the Company entered into an investment banking agreement
with Redstone Securities, Inc. ("Redstone") pursuant to which Redstone agreed to
perform certain investment banking services in exchange for a fee payable by the
granting of an option to Redstone to purchase up to 120,000 as adjusted shares
of Common Stock of the Company at an exercise price of $.001 per share. In
November 1996, Redstone exercised its option to purchase 100,000 as adjusted
shares of Common Stock and in January 1997 exercised its option to purchase the
remaining 20,000 as adjusted shares of Common Stock. The Company issued such
shares in accordance with an exemption from registration afforded by Section
4(2) under the Act. 22. The common stock issued to Redstone was issued in
connection with the exercise by Redstone of an option granted by the Company to
Redstone in connection with an Investment Banking Retention Agreement. Redstone
has been actively involved with the Company and has acted as an advisor to the
Company for approximately 5 years. The Company issued the option in reliance
upon the exemption contained in Section 4(2) of the Act. By acting as investment
banker and financial advisor to the Company, Redstone had access to all
information regarding the Company including all documents, public records,
books, and accounts of the company and was able to ask questions of and receive
answers from representatives of the Company regarding the same. Redstone, as a
broker/dealer and investment banking firm, is sophisticated in matters of
business and finance, understood the risk inherent in an investment in the
Company, was acquiring the stock for their own account, not with a view of
distribution thereof, and thoroughly understood and was willing to bear all the
risks related to ownership of the Company's securities.
24
<PAGE>
On or about August 29, 1996, the Company issued 43,250 as adjusted shares of
Common Stock in consideration of the purchase price for certain real property
purchased by Gems. 23. The common stock issued to the seller was issued in
consideration for the purchase of certain real property. The Company issued the
common stock in reliance upon the exemption contained in Section 4(2) of the
Act. No offering of common stock was made to any persons other to seller. As a
result of his relationship to the Company, seller was given and had access to
all information regarding the Company, including all documents, public records,
books and accounts of the Company and was able to ask questions of an receive
answers from representatives of the Company regarding the same. Seller
understood the risk inherent in an investment in the Company, was acquiring the
stock for their own account, not with a view of distribution thereof, and
thoroughly understood and was willing to bear all the risks related to ownership
of the Company's securities.
In consideration of the extension of the Kennec portion of the Hayden Kennec
Leases, the Company issued to Dorothy Kennec, 4,160 as adjusted shares of the
Company Common Stock in April 1997. The stock was valued at $3.125 per share
having an aggregate value at the time of the extension agreement of $13,000. The
common stock issued in to Mrs. Kennec was issued as further consideration for
the extension of the terms of the Hayden/Kennec Lease. The Company issued the
common stock in reliance upon the exemption contained in Section 4(2) of the
Act. Mrs. Kennec is the 50% owner of the certain of the properties comprising
the Franklin Mines that the Company has leased for over 20 years. No offering of
common stock was made to any persons other to Mrs. Kennec. As a result of her
relationship to the Company, Mrs. Kennec had access to all information regarding
the Company, including all documents, public records, books, and accounts of the
Company and was able to ask questions of and receive answers from
representatives of the Company regarding the same. Mrs. Kennec understood the
risk inherent in an investment in the Company, was acquiring the stock for her
own account, not with a view of distribution thereof, and thoroughly understood
and was willing to bear all the risks related to ownership of the Company's
securities.
On September 26, 1996, the Company acquired a 20% interest in Newmineco from
Gems for a purchase price of $600,000 evidenced by an interest only note bearing
interest at 9.5% per annum. On February 10, 1997, the Company made its election
to convert the amounts owing on the Newmineco Note into Common Stock of the
Company at a conversion price of $1.95 per share. The Company issued to such
holders and aggregate of 307,692 as adjusted shares of Common Stock of the
Company in full satisfaction of the Company's obligations under the Newmineco
Note. The shares were issued in accordance with an exemption from registration
afforded by Section 4(2) under the Act.
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.
During 1997, remediation work was performed and completed at the Franklin Mines
and the Franklin Mill in preparation for the commencement of mining operations
at the Franklin Mines.
The Company remains in the development stage and has not generated significant
revenues on a sustained basis since its inception. The Company did not realize
any revenues based on sales made by the Zeus Joint Venture or Newmineco in 1998
and 1997. Since the termination of the Zeus Joint Venture in 1997, and the
abandonment of its participation in Newmineco, the Company will no longer
recognize income or losses based on its proportionate equity interest in these
entities. Accordingly, the Company will be entitled to receive 100% of the
income generated from the Franklin Mines, if any, once production is commenced.
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 in early 1997 and through its
relationship with USM and its affiliates for the remainder of 1997 and during
1998. The
25
<PAGE>
Company has derived no income from its mining and milling investments which, as
of December 31, 1998, were comprised of investments in the assets and rights
related to the Franklin Mines and Mill.
During 1998, the Company relied on its Joint Venture partner Gems, and later USM
and its affiliates as its principal capital resource. As of December 1998, the
Company borrowed approximately $1,192,000 from USM and affiliates.
The Company had total current liabilities as of December 31, 1998 of $2,239,675,
including $1,191,586 constituting the principal balance of the USM Note,
convertible debentures with a principal amount of $145,000 and other notes
payable with a principal balance of $218,965. In addition to the payment of its
current liabilities, the Company incurred general, administrative and other
costs and expenditures related to any mining and milling operations, at the rate
of approximately $60,000 per month in 1998 and expects to incur additional
administrative expenses of approximately $15,000 per month plus interest in
1999.
During 1998 and 1997, USM and its affiliates advanced approximately $237,000 and
$955,000, respectively, on behalf of the Company. These monies were used to,
among other things, pay for legal and accounting fees in connection with public
filings and necessary general and administrative expenses. In November 1997, USM
purchased Gems interest in the Zeus Joint Venture and assigned the rights to the
Company in exchange for the assumption of certain liabilities. This transfer
gave the Company 100% of net profits generated by operations at the Franklin
Mines. Also, in November 1997, USM entered into a contract to purchase 50% of
all of the mineral rights from Audrey Hayden, a co-lessor to the Company.
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. As of the date of this
Annual Report, USM has continued to fund the Company directly or indirectly
since 1997. While there is currently no written agreement between the Company
and USM, the Company believes, based solely on prior performance, that USM will
fulfill its commitment to fund until January 2000. It is anticipated that the
funds received from USM and its affiliates will cover the general,
administrative and other costs which Management estimates will be approximately
$15,000 per month. Management further anticipates, but cannot assure, that USM
will provide $750,000 of funding which Management estimates will be needed to
ready the Franklin Mine and Milling properties for the commencement of
extraction and milling. Additional funding, however, will be needed to support
operations once mining and milling commence to finance operations as well as
upgrade the processing facilities to allow for an increase in ore processing
capacity.
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 USM and its affiliates; however, it cannot assure that USM will
continue to finance the Company. Management believes, but cannot assure, that
such financing and the financing needed to commence operations at the Franklin
Mines will be provided by USM and its affiliates during 1999, and that the
Company will remain dependent on USM and its affiliates as its primary source of
financing for its operations until such time, if any, as the Company begins to
receive cash flows from the Franklin Mine and Mill.
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 during 1999. To be able to commence milling
operations, the Company will have to obtain sufficient working capital of
approximately $750,000 and hire managerial and other mill personnel.
Plan of Operations
For the remainder of fiscal 1999, the Company plans to (i) commence the
extraction of minerals from the Franklin Mine and full scale operations at the
Franklin Mill, (ii) hire personnel to adequately staff the mine and mill and
(iii) conclude negotiations of possible joint ventures with neighboring mines.
Management estimates that approximately $750,000 of capital will be needed to
achieve (i) and (ii).
26
<PAGE>
In the event that the Company should acquire additional working capital, then
the Company will initiate a reconfiguration program at the Franklin Mill to
expand mill capacity to processing 300 tons of ore per day by the end of fiscal
year 2000 and initiate core drilling programs to substantiate additional proven
ore reserves.
Results of Operations 1998 vs. 1997
The Company had no active mining or milling operations during 1998.
The Company had a net loss of $1,531,317 for 1998 as compared to a net loss of
$1,908,475 during 1997. The decrease of $577,158 was primarily attributable to
an increase in general and administrative expense in 1998 of $274,230 offset by
the effects of a loss on sale/write down of mining and milling and other
property and equipment ($465,000 in 1998 and $1,200,000 in 1997). General and
administrative expenses were $642,592 for 1998 as compared with $368,353 during
1997 due primarily to increases in professional fees and costs of investment
banking services. Interest expense was $123,127 during 1998 as compared to
$33,334 during 1997 due to increased interest incurred in connection with the
Company's notes payable.
Results of Operations 1997 vs 1996
The Company had a net loss of $1,908,475 for 1997 as compared to a net loss of
$967,524 during 1996. This increase of $940,951 or 97% was primarily
attributable to a $1,200,000 write-down of mining, milling and other property
and equipment associated with the Gold Hill Mill, no such costs were reflected
in 1996 by the Company. In addition, during 1997, mine expenses and
environmental remediation costs of $162,945 were incurred by the Company. During
1996, these costs were reflected on the books of the Joint Venture and/or Gems
and its affiliates.
Other than the write-down and the mine and environmental remediation expenses,
the loss from other sources was $545,530 for 1997 compared to $967,524 for 1996
expenses.
General and administrative expenses declined from approximately $733,000 in 1996
to approximately $368,000 in 1997. This reduction of approximately $365,000 or
50% is attributable primarily to the following:
* Reduction in professional fees from approximately $395,000 in 1996 to
approximately $179,000 in 1997, this $216,000 decrease represents a
55% reduction. Professional fees consist of legal, accounting and
engineering fees. Professional fees were greater in 1996 as compared
to 1997 because of expenses incurred in connection with the various
litigation, environmental and financing matters described in items 1
and 3.
* Investment banking fees decreased by $105,000 in 1997 from $213,000 to
$108,000, a 49% decrease. All investment-banking fees were incurred in
connection with the Company's agreement with Redstone Securities. This
agreement expired during 1997.
Other general and administrative expenses during 1996 and 1997 included: costs
associated with the Company's public filings, rent, office, and other fees.
Interest expense for 1997 was approximately $33,000 as compared to $102,000 for
1996. This $69,000 decrease, or 68% is attributable to the decrease in
obligations payable to Gems and its affiliates. Interest associated with
obligations incurred and assumed with respect to the $955,756 note payable to
USM were substantially recorded during November and December of 1997.
During 1997, the Company recognized $9,249 in income related to the Joint
Venture. During 1996, the Company recorded a loss from Joint Venture of $12,950.
27
<PAGE>
Other expenses reflected in 1997 of $35,000 were incurred in connection with the
Golder litigation (See Item 3).
Item 7. Financial Statements and Supplementary Data
The index to Financial Statements appears on page F-1.
28
<PAGE>
WCM CAPITAL, INC.
(FORMERLY FRANKLIN CONSOLIDATED MINING CO., INC.)
(a Development Stage Company)
- INDEX -
<TABLE>
<CAPTION>
Page(s)
<S> <C>
Report of Independent Auditors F - 2
Financial Statements:
Balance Sheets, December 31, 1998 and 1997 F - 3
Statements of Operations, Years Ended December 31, 1998 and 1997 and
Cumulative Period From December 1, 1977 (Inception) to December 31, 1998 F - 4
Statements of Stockholders' Equity, Years Ended December 31, 1998 and 1997 and
Cumulative Period From December 1, 1977 (Inception) to December 31, 1998 F - 5
Statements of Cash Flows, Years Ended December 31, 1998 and 1997 and
Cumulative Period From December 1, 1977 (Inception) to December 31, 1998 F - 6
Notes to Financial Statements F - 12
</TABLE>
F-1
<PAGE>
F-2
<PAGE>
WCM CAPITAL, INC.
(FORMERLY FRANKLIN CONSOLIDATED MINING CO., INC.)
(a Development Stage Company)
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
- ASSETS -
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ -- $ 1,078
------------ ------------
TOTAL CURRENT ASSETS -- 1,078
------------ ------------
OTHER ASSETS:
Mining, milling and other property and equipment, net of accumulated
depreciation and depletion of $2,105,515 and $1,959,160 (Notes 4 and 7) 4,808,580 5,424,935
Land - held for sale (Note 3) -- 345,000
Mining reclamation bonds (Note 5a) 134,602 130,681
------------ ------------
$ 4,943,182 $ 5,901,694
============ ============
- LIABILITIES AND STOCKHOLDERS' EQUITY -
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 654,164 $ 367,933
Payroll and other taxes payable 29,960 31,181
Convertible debentures (Note 6) 145,000 145,000
Notes payable - related party and others (Note 5) 218,965 167,000
Note payable - related party (Note 7) 1,191,586 955,756
------------ ------------
TOTAL CURRENT LIABILITIES 2,239,675 1,666,870
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 8)
STOCKHOLDERS' EQUITY (Notes 10 and 11):
Common stock, par value $.25 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 (15,700,041) (14,168,724)
------------ ------------
2,703,507 4,234,824
------------ ------------
$ 4,943,182 $ 5,901,694
============ ============
</TABLE>
See auditors' report and notes to financial statements.
F-3
<PAGE>
WCM CAPITAL, INC.
(FORMERLY FRANKLIN CONSOLIDATED MINING CO., INC.)
(a Development Stage Company)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998 AND 1997
AND PERIOD FROM DECEMBER 1, 1977 (INCEPTION)
TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
Cumulative
from
1998 1997 Inception
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Sales $ -- $ -- $ 876,082
Interest income 3,920 3,888 548,695
Other income 4,397 -- 79,397
------------
8,317 3,888 1,504,174
------------ ------------ ------------
EXPENSES:
Mine expenses and environmental remediation costs 62,560 162,945 3,586,298
Loss on sale/write-down of mining and milling and other property
and equipment 465,000 1,200,000 1,665,000
Depreciation and depletion 146,355 121,980 2,300,864
General and administrative expenses 642,592 368,353 6,248,377
Interest expense 123,127 33,334 1,141,479
Amortization of debt issuance expense -- -- 683,047
Equity in net (income) loss and settlement of claims of Joint Venture -- (9,249) 1,059,971
Other 100,000 35,000 519,179
------------ ------------ ------------
1,559,634 1,912,363 17,204,215
------------ ------------ ------------
NET LOSS (Note 9) $ (1,531,317) $ (1,908,475) $(15,700,041)
============ ============ ============
BASIC LOSS PER COMMON SHARE $ (.39) $ (.48)
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 3,955,169 3,940,000
============ ============
</TABLE>
See auditors' report and notes to financial statements.
F-4
<PAGE>
WCM CAPITAL, INC.
FORMERLY FRANKLIN CONSOLIDATED MINING CO., INC.)
(a Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY Page 1 of 5
YEARS ENDED DECEMBER 31, 1998 AND 1997
AND PERIOD FROM DECEMBER 1, 1977 (INCEPTION)
TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Paid-in Development Treasury
Shares Stock Capital Stage Stock Total
-=----- ----------- ----------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock:
Cash 6,200 $ 1,550 $ 41,550 $ -- $ -- $ 43,100
Non-cash:
Related parties 37,000 9,250 -- -- -- 9,250
In exchange for shares of Gold
Developers and Producers, Inc. 43,800 10,950 6,484 -- -- 17,434
Net loss -- -- -- (45,584) --
------- ----------- ----------- ----------- --------- -----------
(45,584)
Balance, December 31, 1977 87,000 21,750 48,034 (45,584) -- 24,200
Issuance of common stock:
Pursuant to public offering, net of
underwriting expenses of $11,026 23,528 5,882 278,113 -- -- 283,995
Cash 9,000 2,250 240,627 -- -- 242,877
Non-cash 200 50 4,950 -- -- 5,000
Net loss -- -- -- (66,495) --
------- ----------- ----------- ----------- --------- -----------
(66,495)
Balance, December 31, 1978 119,728 29,932 571,724 (112,079) -- 489,577
Issuance of common stock:
Cash 9,274 2,318 438,932 -- -- 441,250
Non-cash - related parties 1,600 400 59,600 -- -- 60,000
Non-cash - other 267 67 13,283 -- -- 13,350
Net loss -- -- -- (128,242) --
------- ----------- ----------- ----------- --------- -----------
(128,242)
Balance, December 31, 1979 130,869 32,717 1,083,539 (240,321) -- 875,935
Issuance of common stock:
Cash 11,590 2,898 837,102 -- -- 840,000
Non-cash 2,380 595 118,405 -- -- 119,000
Net loss -- -- -- (219,021) -- (219,021)
------- ----------- ----------- --------- --------- -----------
Balance, December 31, 1980 144,839 36,210 2,039,046 (459,342) -- 1,615,914
Issuance of common stock:
Cash 2,625 656 261,844 -- -- 262,500
------- ----------- ----------- ----------- --------- -----------
Balance, pre-stock split 147,464 36,866 2,300,890 (459,342) -- 1,878,414
Issuance of common stock:
Pursuant to a four-for-one stock split 442,392 110,598 (110,598) -- -- --
Cash 23,120 5,780 552,220 -- -- 558,000
Non-cash 4,160 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 617,136 154,284 2,788,172 (747,447) -- 2,195,009
</TABLE>
See auditors' report and notes to financial statements.
F-5
<PAGE>
WCM CAPITAL, INC.
(FORMERLY FRANKLIN CONSOLIDATED MINING CO., INC.)
(a Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY Page 2 of 5
YEARS ENDED DECEMBER 31, 1998 AND 1997
AND PERIOD FROM DECEMBER 1, 1977 (INCEPTION)
TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Paid-in Development Treasury
Shares Stock Capital Stage Stock Total
------- ----------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock:
Cash 34,440 $ 8,610 $ 755,516 $ -- $ -- $ 764,126
Non-cash 6,480 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 658,056 164,514 3,647,993 (1,034,738) -- 2,777,769
Issuance of common stock:
Cash 50,925 12,732 1,176,818 -- -- 1,189,550
Non-cash 2,833 708 70,126 -- -- 70,834
Exercise of stock options by:
Related parties 10,700 2,675 264,825 -- -- 267,500
Others 160 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 722,674 180,669 5,038,892 (1,783,904) -- 3,435,657
Issuance of common stock:
Cash 48,068 12,017 1,139,683 -- -- 1,151,700
Non-cash 1,100 275 27,225 -- -- 27,500
Exercise of stock options by related parties 8,000 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 779,842 194,961 6,312,850 (2,085,798) -- 4,422,013
Issuance of common stock:
Cash 16,853 4,213 295,866 -- -- 300,079
Non-cash 400 100 7,400 -- -- 7,500
Exercise of stock options by:
Related parties 8,000 2,000 148,000 -- -- 150,000
Others 40 10 740 -- -- 750
Commission on sale of common stock -- -- (3,462) -- -- (3,462)
Net loss -- -- -- (133,929) -- (133,929)
------- ----------- ----------- ----------- --------- -----------
Balance, December 31, 1985 805,135 201,284 6,761,394 (2,219,727) -- 4,742,951
</TABLE>
See auditors' report and notes to financial statements.
F-6
<PAGE>
WCM CAPITAL, INC.
(FORMERLY FRANKLIN CONSOLIDATED MINING CO., INC.)
(a Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY Page 3 of 5
YEARS ENDED DECEMBER 31, 1998 AND 1997
AND PERIOD FROM DECEMBER 1, 1977 (INCEPTION)
TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Paid-in Development Treasury
Shares Stock Capital Stage Stock Total
--------- ----------- ----------- ----------- --------- -----------
Issuance of common stock:
<S> <C> <C> <C> <C> <C> <C>
Cash 22,760 $ 5,690 $ 294,810 $ -- $ -- $ 300,500
Non-cash - related parties 6,400 1,600 78,400 -- -- 80,000
Non-cash - others 5,400 1,350 52,650 -- -- 54,000
Net loss -- -- -- (227,788) -- (227,788)
--------- ----------- ----------- ----------- ----------- ------------
Balance, December 31, 1986 839,695 209,924 7,187,254 (2,447,515) -- 4,949,663
Issuance of common stock:
Cash 104,175 26,044 1,261,257 -- -- 1,287,301
Non-cash - related parties 8,080 2,020 68,880 -- -- 70,900
Non-cash - other 1,500 375 36,875 -- -- 37,250
Commission on sale of common stock -- -- (110,243) -- -- (110,243)
Net loss -- -- -- (730,116) -- (730,116)
--------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1987 953,450 238,363 8,444,023 (3,177,631) -- 5,504,755
Issuance of common stock - non-cash - related
parties 8,000 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, at December 31, 1988 961,450 240,363 8,492,023 (3,564,335) (12,500) 5,155,551
Issuance of common stock:
Cash 27,120 6,780 103,720 -- -- 110,500
Non-cash - others 11,346 2,836 31,030 -- -- 33,866
Non-cash -related parties 8,400 2,100 29,400 -- -- 31,500
Private placement:
Cash 91,000 22,750 -- -- -- 22,750
Debt issuance expense -- -- 455,000 -- -- 455,000
Conversion of debentures 42,000 10,500 94,500 -- -- 105,000
Exercise of stock options 12,000 3,000 42,000 -- -- 45,000
Commission on sale of common stock -- -- (1,500) -- -- (1,500)
Compensation resulting from stock options
granted -- -- 39,000 -- -- 39,000
Net loss -- -- -- (1,279,804) -- (1,279,804)
--------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1989 1,153,316 288,329 9,285,173 (4,844,139) (12,500) 4,716,863
</TABLE>
See auditors' report and notes to financial statements.
F-7
<PAGE>
WCM CAPITAL, INC.
(FORMERLY FRANKLIN CONSOLIDATED MINING CO., INC.)
(a Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY Page 4 of 5
YEARS ENDED DECEMBER 31, 1998 AND 1997
AND PERIOD FROM DECEMBER 1, 1977 (INCEPTION)
TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Paid-in Development Treasury
Shares Stock Capital Stage Stock Total
--------- ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Sale of underwriter's stock warrants -- $ -- $ 100 $ -- $ -- $ 100
Issuance of common stock:
Cash 13,400 3,350 41,875 -- -- 45,225
Non-cash - others 1,594 399 5,579 -- -- 5,978
Conversion of debentures 6,400 1,600 30,400 -- -- 32,000
Net loss -- -- -- (1,171,962) -- (1,171,962)
--------- ------------ ------------ ------------ ------------ -------------
Balance, December 31, 1990 1,174,710 293,678 9,363,127 (6,016,101) (12,500) 3,628,204
Issuance of common stock:
Cash - others 71,984 17,996 78,935 -- -- 96,931
Cash - related parties 72,000 18,000 72,000 -- -- 90,000
Non-cash - others 47,348 11,837 47,350 -- -- 59,187
Conversion of debentures 149,240 37,310 588,690 -- -- 626,000
Exercise of stock options 10,000 2,500 10,000 -- -- 12,500
Conversion of notes payable 10,000 2,500 12,500 -- -- 15,000
Net loss -- -- -- (764,926) -- (764,926)
--------- ------------ ------------ ------------ ------------ -------------
Balance, December 31, 1991 1,535,282 383,821 10,172,602 (6,781,027) (12,500) 3,762,896
Issuance of common stock:
Cash - others 80,877 20,219 149,389 -- -- 169,608
Cash - related parties 25,200 6,300 42,700 -- -- 49,000
Non-cash - others 69,185 17,296 348,762 -- -- 366,058
Non-cash - related parties 484 121 485 -- -- 606
Non-cash - exercise of options
by related parties 82,000 20,500 82,000 -- -- 102,500
Conversion of debentures 21,600 5,400 156,600 -- -- 162,000
Commission on sale of common stock -
related parties -- -- (7,123) -- -- (7,123)
Net loss -- -- -- (1,343,959) -- (1,343,959)
--------- ------------ ------------ ------------ ------------ -------------
Balance, December 31, 1992 1,814,628 453,657 10,945,415 (8,124,986) (12,500) 3,261,586
Issuance of common stock:
Cash - others 34,936 8,734 125,230 -- -- 133,964
Cash - related parties 31,080 7,770 69,930 -- -- 77,700
Non-cash - others 6,000 1,500 13,500 -- -- 15,000
Non-cash - settlement of litigation 40,000 10,000 90,000 -- -- 100,000
Non-cash - exercise of options
by related parties 8,000 2,000 8,000 -- -- 10,000
Conversion of debentures 5,600 1,400 33,600 -- -- 35,000
Conversion of loan 4,000 1,000 9,000 -- -- 10,000
Net loss -- -- -- (797,619) -- (797,619)
--------- ------------ ------------ ------------ ------------ -------------
Balance, December 31, 1993 1,944,244 486,061 11,294,675 (8,922,605) (12,500) 2,845,631
</TABLE>
See auditors' report and notes to financial statements.
F-8
<PAGE>
WCM CAPITAL, INC.
(FORMERLY FRANKLIN CONSOLIDATED MINING CO., INC.)
(a Development Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY Page 5 of 5
YEARS ENDED DECEMBER 31, 1998 AND 1997
AND PERIOD FROM DECEMBER 1, 1977 (INCEPTION)
TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Paid-in Development Treasury
Shares Stock Capital Stage Stock Total
--------- ------------- ------------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Retirement of treasury stock (2,000) $ (500) $ (12,000) $ -- $12,500 $ --
Net loss -- -- -- (381,596) -- (381,596)
--------- ------------- ------------- ------------ -------- -----------
Balance, December 31, 1994 1,942,244 485,561 11,282,675 (9,304,201) -- 2,464,035
Issuance of common stock:
Settlement of claims by joint venture partner
as restated 240,000 60,000 876,000 -- -- 936,000
Repayments of loan from joint venture partner
as restated 128,000 32,000 467,200 -- -- 499,200
Repayments of long-term loans from related
parties and accrued interest 347,192 86,798 590,227 -- -- 677,025
Exchange of shares for profit participation
interests 108,000 27,000 (27,000) -- -- --
Net loss, as restated -- -- -- (1,641,944) -- (1,641,944)
--------- ------------- ------------- ------------ --------- ------------
Balance, December 31, 1995, as restated 2,765,436 691,359 13,189,102 (10,946,145) -- 2,934,316
Issuance of common stock for:
Cash 70,136 17,534 280,066 -- -- 297,600
Services and interest, as restated 148,640 37,160 525,277 -- -- 562,437
Conversion of convertible notes 171,790 42,948 515,372 -- -- 558,320
Repayments of loan from joint venture partner 92,640 23,160 338,715 -- -- 361,875
Repayments of long-term loans from related
party 374,677 93,669 1,369,912 -- -- 1,463,581
Net loss, as restated -- -- -- (1,314,104) -- (1,314,104)
--------- ------------- ------------- ------------ --------- ------------
Balance, December 31, 1996, as restated 3,623,319 905,830 16,218,444 (12,260,249) -- 4,864,025
Issuance of common stock for:
Extension of lease rights 4,160 1,040 11,960 -- -- 13,000
Conversion of note payable 307,692 76,923 523,077 -- -- 600,000
Conversion of debt 20,000 5,000 45,500 -- -- 50,500
Acquisition of joint venture -- -- 615,774 -- -- 615,774
Net loss -- -- -- (1,908,475) -- (1,908,475)
--------- ------------- ------------- ------------ -------- ------------
Balance, December 31, 1997, as restated 3,955,169 988,793 17,414,755 (14,168,724) -- 4,234,824
Net loss -- -- -- (1,531,317) -- (1,531,317)
--------- ------------- ------------- ------------ --------- ------------
BALANCE, DECEMBER 31, 1998 3,955,169 $ 988,793 $ 17,414,755 $(15,700,041) $ -- $ 2,703,507
========= ============= ============= ============ ========= ============
</TABLE>
See auditors' report and notes to financial statements.
F-9
<PAGE>
WCM CAPITAL, INC.
(FORMERLY FRANKLIN CONSOLIDATED MINING CO., INC.)
(a Development Stage Company)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997 Page 1 of 2
AND PERIOD FROM DECEMBER 1, 1977 (INCEPTION)
TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
Cumulative
from
1998 1997 Inception
------------ ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,531,317) $ (1,908,475) $(15,700,041)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and depletion 146,355 121,980 2,300,864
Provision for bad debt 350,000 -- 350,000
Write-down of mining and milling and other property and
equipment 200,000 1,200,000 1,400,000
Amortization of debt issuance expense -- 683,047
Loss on sale of equipment 265,000 -- 265,000
Value of common stock issued for:
Services and interest 13,000 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 (income) loss of joint venture (9,249) 123,971
Other -- (7,123)
Changes in operating assets and liabilities:
Prepaid expenses 107,979 --
Interest accrued on mining reclamation bonds (3,921) (3,806) (9,602)
Accounts payable and accrued expenses 285,010 (104,986) 916,380
------------ ------------ ------------
Net cash used in operating activities (288,873) (583,557) (6,282,210)
------------ ------------ ------------
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)
------------ ------------ ------------
</TABLE>
See auditors' report and notes to financial statements.
F-10
<PAGE>
WCM CAPITAL, INC.
(FORMERLY FRANKLIN CONSOLIDATED MINING CO., INC.)
(a Development Stage Company)
STATEMENTS OF OPERATIONS Page 2 of 2
YEARS ENDED DECEMBER 31, 1998 AND 1997
AND PERIOD FROM DECEMBER 1, 1977 (INCEPTION)
TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
Cumulative
from
1998 1997 Inception
------------ ------------ -------------
<S> <C> <C> <C>
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 37,234 (181,017)
Payments of debt issuance expenses -- (164,233)
Proceeds of other notes and loans payable 287,795 547,274 1,603,069
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 287,795 584,508 11,782,883
------------ ------------ ------------
INCREASE (DECREASE) IN CASH (1,078) 951 --
Cash, beginning of period 1,078 127 --
------------ ------------ ------------
CASH, END OF PERIOD $ -- $ 1,078 $ --
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA:
Interest paid $ -- $ -- $ 299,868
============ ============ ============
</TABLE>
NON-CASH ITEMS:
During 1998: The Company sold its Gold Hill Properties with a book value of
$1,340,000 for property having a fair market value of $725,000 and a note
receivable of $350,000. A loss of $265,000 was recognized on the transaction.
During 1997: (1) the Company converted a $600,000 note payable to a former joint
venture partner to 307,692 shares of Company stock (2) the Company also issued
20,000 shares of common stock as consideration for a liability of approximately
$50,000 due to an unaffiliated third party (3) in connection with the
elimination of the Zeus Joint Venture, the Company acquired net assets of
$615,774 and recorded additional paid-in capital of the same amount and (4) the
Company wrote down the remaining $150,000 investment associated with the 20%
purchase of Newmineco and simultaneously reduced a note payable to a party
related to Newmineco.
See auditors' report and notes to financial statements.
F-11
<PAGE>
WCM CAPITAL, INC.
(FORMERLY FRANKLIN CONSOLIDATED MINING CO., INC.)
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION:
WCM Capital, Inc. (formerly Franklin Consolidated Mining Co., Inc.)
(the "Company") originally incorporated on December 1, 1976 under the
laws of the State of Delaware, is engaged in the exploration,
development and mining of precious and non-ferrous metals, including
gold, silver, lead, copper and zinc. The Company owns or has an
interest in a number of precious and non-ferrous metal properties. The
Company's principal mining properties are (i) the Franklin Mines,
located near Idaho Springs in Clear Creek County, Colorado, for which
the Company acquired the exclusive right to explore, develop, mine,
and extract all minerals located in approximately 51 mining claims
(the "Franklin Mines"), (ii) the Franklin Mill, a crushing and
flotation mill which is located on the site of the Franklin Mines (the
"Franklin Mill"), and up until its sale on June 5, 1998 (iii) the Gold
Hill Mill (see Note 2d), a fully permitted modern facility located in
Boulder County, Colorado (the "Gold Hill Mill"). The Company is a
development stage enterprise because it did not generate any
significant revenues through December 31, 1998. On October 13, 1998,
the Company held its annual meeting of shareholders at which time the
shareholders approved an amendment to its certificate of incorporation
changing the name of the Company to WCM Capital, Inc. The name change
was effective October 16, 1998.
In February 1993, the Company entered into a joint venture arrangement
with Island Investment Corp., a Nevada corporation ("Island"),
pursuant to which the parties formed Zeus No. 1 Investments, a
California general partnership (the "Joint Venture"). The Company had
a 17.5% interest in the Joint Venture, and Island had the remaining
82.5% interest. The Joint Venture was formed to develop the Franklin
Mines and related assets of the Company. In May 1993, Island assigned
its interest in the Joint Ventures to Gems and Minerals Corp.,
("Gems") a wholly owned subsidiary of Island. On July 15, 1996, Gems
transferred 31.5% of its 82.5% interest in the Joint Venture to Nuco
Ventures, Inc., a Delaware Company, and wholly-owned subsidiary of
Gems ("Nuco").
During 1997, in a step transaction, Gem's and Nuco's aggregate 82.5%
interest in the Joint Venture was acquired by U.S. Mining, Inc., a New
Jersey corporation ("USM"). USM assigned the acquired interest to the
Company in exchange for the assumption by the Company of certain
liabilities. Upon the acquisition of the 82.5% interest of the Joint
Venture by the Company, the relationship with Gems was terminated and
the Joint Venture was effectively dissolved.
F-12
<PAGE>
WCM CAPITAL, INC.
(FORMERLY FRANKLIN CONSOLIDATED MINING CO., INC.)
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION (Continued):
<TABLE>
<CAPTION>
In conjunction with these transactions, the Company:
<S> <C>
o Acquired mine and mill improvements having a net book value of
(see Note 4) $ 780,787
o Eliminated the Joint Venture deficit of $123,971, after giving
effect to equity in net income of Joint Venture of $9,249 for
1997 123,971
o Eliminated a $458,567 liability which represented the remainder
of a note and related accrued interest payable to a subsidiary of
Gems in conjunction with the acquisition of the Gold Hill Mill 458,567
o Eliminated a $229,204 receivable from Gems (229,204)
o Assumed notes payable - other of $87,000 and related accrued
interest on these notes of $16,858 (see Note 5) (103,858)
o Assumed a liability of $408,482 payable to POS Financial, Inc.
(see Note 7) (408,482)
o Assumed a liability of $20,255 associated with the Joint Venture
less other items of $14,248 (6,007)
----------
The net amount of $615,774 was credited to additional paid-in capital. $ 615,774
==========
</TABLE>
Basis of Presentation/Going Concern Uncertainty:
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
December 31, 1998 and 1997, the Company has a cash balance of $0 and
$1,078, respectively an accumulated deficit of $15,700,041 and
$14,168,724, respectively current liabilities of $2,239,675 and
$1,666,870, and a working capital deficiency of $ 2,239,675 and
$1,665,792. In addition, its operations used $288,873 and $583,557 of
cash for the year ended December 31, 1998 and 1997, respectively.
Also, the Company was in default on the payment of the principal
balance and accrued interest on certain notes and debentures (see
Notes 5 and 6). 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 $15,000 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.
F-13
<PAGE>
WCM CAPITAL, INC.
(FORMERLY FRANKLIN CONSOLIDATED MINING CO., INC.)
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION (Continued):
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 $15,000 per
month plus interest. 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 once needed.
There can be no assurance that the Company will have adequate funds
available to repay the funds advanced by USM and its affiliates. In
the event that the Company defaults on its obligations, USM may
foreclose on the assets secured by the POS note. Such foreclosure
actions by USM would have a material adverse effect on the future
operations of the Company and the Company's ability to exploit the
Franklin Mines.
Substantially all of the $4,808,580 of mineral properties and
equipment included in the accompanying balance sheet as of December
31, 1998, is related to exploration properties. The ultimate
realization of the Company's investment in exploration properties and
equipment is dependent upon the success of future property sales, the
existence of economically recoverable reserves, the ability of the
Company to obtain financing or make other arrangements for
development, and upon future profitable production.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company's accounting policies are in accordance with generally
accepted accounting principles. Outlined below are those policies that
are considered particularly significant.
(1) Use of Estimates:
To prepare financial statements in accordance with generally accepted
accounting principles, management makes certain estimates and
assumptions, where applicable, that affect the reported amounts of
assets and liabilities at the date of the financial statements, as
well as the reported amounts of revenues and expenses during the
reporting period. While actual results could differ from those
estimates, management does not expect such variances, if any, to have
a material effect on the financial statements.
(2) Cash Equivalents:
The Company defines cash equivalents as all short-term, highly liquid
investments with original maturity dates less than 90 days.
F-14
<PAGE>
WCM CAPITAL, INC.
(FORMERLY FRANKLIN CONSOLIDATED MINING CO., INC.)
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(3) Mining, Milling and Other Property and Equipment:
Mining, milling and other property and equipment are recorded at cost.
Costs incurred to acquire, explore, improve, and develop mining and
milling properties are capitalized and amortized in relation to the
production of estimated reserves. Mine development expenditures
incurred substantially in advance of production are deferred on an
individual property basis until the viability of a property is
determined. When a property is placed in commercial production, such
deferred costs are depleted using the units-of-production method.
General exploration costs and costs to maintain the mineral rights and
leases are expensed as incurred. Management of the Company
periodically reviews the recoverability of the capitalized mineral
properties and mining equipment. Management takes into consideration
various information including, but not limited to, historical
production records taken from previous mine operations, results of
exploration activities conducted to date, estimated future prices and
reports and opinions of outside geologists, mine engineers, and
consultants. When it is determined that a project or property will be
abandoned or its carrying value has been impaired, a provision is made
for any expected loss on the project or property.
Post-closure reclamation and site restoration costs are estimated
based upon environmental and regulatory requirements and accrued over
the life of the mine using the units-of-production method. Current
expenditures relating to ongoing environmental and reclamation
programs are expensed as incurred.
Depletion of mining and milling improvements and mine development
expenditures is computed using the units of production method based on
probable reserves (there was no charge for depletion in 1998 and 1997
because the Company's mining and milling operations were not in
operation during these years). Depreciation of equipment is computed
using the straight-line method over the estimated useful lives of the
related assets.
(4) Impairment of Long-Lived Assets:
As of January 1, 1996, the Company adopted the provisions of FASB
Statement of Financial Accounting Standards No. 121, "Accounting of
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 then are measured by comparing the fair
value of assets to their carrying amounts. It was the Company's
determination that due to certain restrictions associated with milling
operations in Boulder County, Colorado, the Gold Hill Mill properties
would not be placed into operation. The Company planned to sell the
land and structural building and move and utilize the equipment to the
Franklin
F-15
<PAGE>
WCM CAPITAL, INC.
(FORMERLY FRANKLIN CONSOLIDATED MINING CO., INC.)
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
properties and in fact on June 5, 1998 the Company sold its Gold Hill
Mill Properties in exchange for property and equipment having a market
value of $725,000 and a 14% note receivable of $350,000. The note is
payable on demand. The Company recognized a loss of $265,000 as a
result of this transaction. As of December 31, 1998, (a) the $350,000
note was written down to $0 and (b) a $200,000 writedown was taken
against the $725,000 of equipment acquired, based upon an evaluation
of impairment.
As a result of its intentions, at December 31, 1997 the Company
reduced by $1,200,000 the carrying value of certain assets relating to
its Gold Hill milling operations to $1,340,000, which approximated
management's estimate of fair value at that time. As stated above,
this property was sold in June of 1998.
(1) Joint Venture:
The Company accounted for its investment in the Joint Venture under
the equity method. As a general partner in the Joint Venture (until
the Joint Venture's dissolution in November 1997 - see Note 1), the
Company would be liable to creditors and certain other parties for any
obligations the Joint Venture might ultimately be unable to satisfy.
Accordingly, through November 25, 1997, the Company recorded its
equity in the net losses of the Joint Venture even though they
exceeded the Company's total investment.
(2) Revenue Recognition:
Revenues, if any, from the possible sales of mineral concentrates will
be recognized by the Company only upon receipt of final settlement
funds from the smelter.
(3) Environmental Remediation Costs:
Environmental remediation costs are accrued based on estimates of
known environmental remediation exposures. Such accruals are recorded
even if significant uncertainties exist over the ultimate cost of the
remediation. Ongoing environmental compliance costs, including
maintenance and monitoring costs are expensed as incurred.
F-16
<PAGE>
WCM CAPITAL, INC.
(FORMERLY FRANKLIN CONSOLIDATED MINING CO., INC.)
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(8) Income Taxes:
Deferred income taxes are to be provided on transactions, which are
reported in the financial statements in different periods than for
income tax purposes. The Company utilizes Financial Accounting Board
Statement No. 109, "Accounting for Income Taxes," ("SFAS 109"). SFAS
109 requires recognition of deferred tax liabilities and assets for
expected future tax consequences of events that have been included in
the financial statements or tax returns. Under this method, deferred
tax liabilities and assets are determined based on the difference
between the financial statements and tax basis of assets and
liabilities using enacted tax rates in effect for the year in which
the difference is expected to reverse. Under SFAS 109, the effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Valuation allowances are established when necessary to reduce deferred
tax assets to the amount expected to be realized (see Note 9).
(1) Loss Per Common Share:
The Company had adopted SFAS 128 "Earnings Per Share" ("SFAS 128"),
which has changed the method of calculating earnings per share. SFAS
128 requires the presentation of "basic" and "diluted" earnings per
share on the face of the income statement. Loss per common share is
computed by dividing the net loss by the weighted average number of
common shares outstanding during each period. Common stock equivalents
have been excluded from the computations since the results would be
anti-dilutive. Earnings per share has been restated for prior periods
to give effect to the twenty-five for one reverse stock split (see
Note 10).
(10) Reclassifications:
Prior years financial statements have been reclassified to conform
with the current year presentation.
(11) Fair Value of Financial Investments:
The carrying amount of the Company's borrowings approximate fair
value.
(12) Statement of Comprehensive Income:
SFAS 130 "Reporting Comprehensive Income" is effective for years
beginning after December 15, 1997. This statement prescribes standards
for reporting comprehensive income and its components. Since the
Company currently does not have any items of comprehensive income, a
statement of comprehensive income is not yet required.
F-17
<PAGE>
WCM CAPITAL, INC.
(FORMERLY FRANKLIN CONSOLIDATED MINING CO., INC.)
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 3 - ACQUISITIONS OF MINING AND MILLING PROPERTIES:
On December 26, 1976, the Company acquired Gold Developers and
Producers Incorporated, a Colorado corporation which, prior to the
acquisition, leased 28 patented mining claims from Audrey and David
Hayden and Dorothy Kennec pursuant to a mining lease and option to
purchase, dated November 12, 1976 (hereinafter collectively referred
to as the "Hayden/Kennec Leases"). In 1981, the Company commenced a
rehabilitation program to extend and rehabilitate the shafts and
tunnels in place at the Franklin Mines, install the Franklin Mill, and
search for and delineate a commercial ore body. In 1983, the Company
completed the Franklin Mill.
On July 3, 1996, the Company acquired the Gold Hill Mill from a
wholly-owned subsidiary of Gems (see Note 1), in exchange for a 8%
mortgage note with an initial principal balance of $2,500,000. The
Gold Hill Mill is a fully permitted milling facility located in
Boulder, Colorado. The Company is responsible for developing and
operating the Gold Hill Mill.
At December 31, 1997, the Company reduced by $1,200,000 the carrying
value of certain of the Gold Hill Mill assets to $1,340,000 which
approximates management's estimate of fair value . Land aggregating
$345,000, of the remaining $1,340,000 in assets, is classified on the
1997 balance sheet as land-held for resale with the balance classified
as mining, milling and other property and equipment. All the Gold Hill
assets were sold during 1998 (see Note 2d).
On September 26, 1996, the Company acquired a 20% interest in
Newmineco, an inactive company, by issuing a 9.5% note payable to Gems
with a principal balance of $600,000. Newmineco represented that it
held the exclusive mining rights related to the Mogul Mines in the
Spencer Mountains of Colorado. Because of certain permitting and other
problems in the Mogul Mines, the purchase price to the Company was
reduced to $150,000 in 1996, and the investment was written down to
zero as at December 31, 1997 (see Note 6).
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 consist of the
following at December 31:
1998 1997
---------- ----------
Machinery and equipment $1,747,220 $2,217,220
Mine and mill improvements (a) 5,071,065 5,071,065
Furniture and fixtures 11,714 11,714
Automotive equipment 84,096 84,096
---------- ----------
6,914,095 7,384,095
Less: accumulated depreciation and depletion 2,105,515 1,959,160
---------- ----------
$4,808,580 $5,424,935
(a) Includes mine and mill improvements of $780,787 in connection with the
termination of the Joint Venture (see Note 1).
F-18
<PAGE>
WCM CAPITAL, INC.
(FORMERLY FRANKLIN CONSOLIDATED MINING CO., INC.)
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 4 - MINING, MILLING AND OTHER PROPERTY AND EQUIPMENT (Continued):
During the years ended December 31, 1998 and 1997, the Company
expended $62,560 and $162,945, respectively on mine expenses and
environmental remediation costs.
NOTE 5 - NOTES PAYABLE - RELATED PARTY AND OTHERS:
Notes payable related party and others consist of the following at
December 31:
1998 1997
---- ----
12% unsecured demand notes due to the Company's
former President and his affiliated entity $ 71,965 $ 20,000
Secured promissory note (a) 60,000 60,000
Unsecured promissory notes (b) 87,000 87,000
-------- --------
$218,965 $167,000
======== ========
(1) 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.
(1) This principal amount represents four unsecured promissory notes
comprised of one $36,000 note and three $17,000 notes payable. These
obligations were assumed by the Company on November 25, 1997, as part
of the acquisition from USM of the remaining interest in the Joint
Venture (see Note 1). These notes were in default when assumed by the
Company, and remain in default as of December 31, 1998. Interest is
being accrued at rates between 8% and 17% per annum.
Accrued interest on the above notes at December 31, 1998 and 1997
aggregated approximately $45,600 and $21,000.
F-19
<PAGE>
WCM CAPITAL, INC.
(FORMERLY FRANKLIN CONSOLIDATED MINING CO., INC.)
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 6 - CONVERTIBLE DEBENTURES AND OTHER CONVERTIBLE DEBT:
The Company's convertible debt at December 31, 1998 and 1997 consists
of:
12.25% convertible debenture originally due 12/31/94 $145,000
As of December 31, 1998 and 1997, the Company was in default with
respect to the payment of the $145,000 principal balance of the
debenture and accrued interest of approximately $67,000 and $49,000,
respectively. As a result of its default, the Company may be subject
to legal proceedings by the Transfer Agent/Trustee under the Indenture
Agreement or from debentureholders 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
debentureholders (see Note 8c).
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. This note could be converted to common stock at the
Company's option on or after January 1, 1997. On February 10, 1997,
the Company notified the assignees that it had elected to convert the
principal balance of the 9.5% note into 307,693 shares of common
stock, as adjusted based on the conversion rate of $1.95, per share as
adjusted. 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 December 31, 1996 and to $-0- on December 31,
1997 (see Note 3). The $450,000 (1996) and $150,000 (1997) reductions
in the purchase price were effectuated through an equivalent reduction
in the principal balance of an 8% mortgage note that was payable to an
affiliate of Gems by the Company.
NOTE 7 - NOTE PAYABLE - RELATED PARTY:
The Company had outstanding an 8% promissory note balance of $955,756,
at December 31, 1997, which represents monies advanced to the Company
by, an affiliated entity, POS Financial, Inc. ("POS"), a New Jersey
corporation and obligations assumed in connection with the
contributions of Joint Venture interests (see Note 1). 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 is subject to successive 30 day
extensions throughout 1998 upon the mutual agreement of the maker and
lender for no additional consideration. On March 5, 1998, POS assigned
this note to USM. Both POS and USM are considered related parties
because they can exert significant influence over the Company.
Additional amounts were loaned to the Company by USM during 1998. The
balance on the note at December 31, 1998 aggregated $1,191,586 plus
accrued interest of $91,950.
F-20
<PAGE>
WCM CAPITAL, INC.
(FORMERLY FRANKLIN CONSOLIDATED MINING CO., INC.)
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 8 - COMMITMENTS AND CONTINGENCIES:
(a) Lease Agreements:
The original Hayden/Kennec Leases provided for payment by the Company
of certain liabilities relating to the leased property and a minimum
royalty payment of $2,000 per month or 5% of the Company's net smelter
royalties realized from production, whichever is greater to Mrs.
Hayden and Mrs. Kennec. The original Hayden/Kennec Leases expired in
November 1996, at which time the Company had the option to purchase
the leasehold rights for a purchase price of $1,250,000 less any
royalties previously paid as of the expiration date. As of November
1996, the Company had paid approximately $480,000 in royalties.
On November 19, 1996, the Company entered into an amendment to the
Hayden/Kennec Leases with Dorothy Kennec (the "Kennec Amendment").
Pursuant to the terms of the Kennec Amendment, Kennec agreed to extend
the term as it relates to her portion of the leasehold rights through
November 12, 1997. In consideration for such extension, the Company
agreed to increase the royalty payment due to Kennec under the
original Hayden/Kennec Leases from $1,000 to $2,000 per month and to
issue to Kennec 4,160 shares of the common stock of the Company valued
at $3.125 per share as adjusted, having an aggregate value of $13,000.
All of the payments made under the Kennec Amendment plus the value of
the shares issued thereunder are to be further applied against the
buy-out price of the property under the original Hayden/Kennec Leases.
The 4,160 shares of common stock were issued on April 9, 1997 (see
Note 10).
To further secure the Company and the Joint Venture, Gems entered into
an agreement on December 21, 1995 to purchase Hayden's interest
thereto (the "Hayden Interests") for a purchase price of $75,000. Gems
made an initial payment of $5,000 to Hayden and the remainder of the
purchase price was to be paid on or prior to the expiration date of
the Hayden/Kennec Leases. Gems advised the Company that under Colorado
law, if an owner of 50% of mineral rights desired to exploit those
rights, then the remaining 50% owner could not object to the
exploitation of the rights, provided the non-participating owner
received 50% of the net profits generated from such exploitation.
Therefore, Gems informed the Company that it believed that with the
acquisition of the Hayden interest, together with the portion of the
Hayden/Kennec Leases owned by Kennec, the Company and the Joint
Venture would have adequate access to the minerals during the
remainder of the term of the Hayden/Kennec Leases on a continuing
basis.
On November 12, 1997, Gems had failed to comply with the terms of the
Hayden/Kennec-Gems Purchase Agreement. On November 13, 1997, Hayden
entered into an agreement to sell the Hayden interests to USM for a
purchase price of $75,000 (the "Hayden-USM Purchase Agreement"). The
purchase price is evidenced by a note, due on February 2, 1998.
Payment on the note has been extended until USM receives a report of
clear title. Upon the execution of the Hayden-USM Purchase Agreement,
USM agreed to extend the Hayden/Kennec Leases upon the same terms and
conditions currently in effect through March 13, 1998 (the "Extended
Expiration Date"). As of December 31, 1998 USM had yet to receive
clear title but continued to make lease payments.
F-21
<PAGE>
WCM CAPITAL, INC.
(FORMERLY FRANKLIN CONSOLIDATED MINING CO., INC.)
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 8 - COMMITMENTS AND CONTINGENCIES (Continued):
(a) Lease Agreements (continued):
While the Company has extended the term of the Hayden/Kennec Leases,
as amended through March 13, 1998, in the event that it shall expire
or otherwise terminate, any improvements made on the property become
the property of the lessor without any further compensation to the
Company and the lessor would have to reclaim the property in
accordance with the State of Colorado Division of Minerals and Geology
(the "DMG") requirements in effect at the time of such expiration or
termination. Thus, the likelihood that the Company would recover
fixtures and other equipment on the property may be minimal.
(b) Environmental Matters:
On January 31, 1997, the Company received approval from the DMG of its
March 6, 1996 amended application to its permit by obtaining the
$252,000 bond required by the DMG from an independent bonding company
in exchange for (i) the deposit by the Company of $125,000 in a trust
account maintained for the benefit of the bonding company, (ii)
guarantees from the Joint Venture partner and certain of its
principals and (iii) the posting of a performance bond from an
independent bonding company by one of the Joint Venture's contractors
with respect to the completion of the technical and remediation work
required by the regulatory authorities. As a result, management
believes that substantially all of the necessary environmental and
regulatory approvals have been obtained from DMG.
The amended permit required among other things the submission of a
final design for tailings disposal facilities, the installation of a
Surface Water Control Plan previously approved by the DMG, the filing
of an Environmental Protection Plan, and the completion of certain
closure plans.
As of December 31, 1998 and 1997, the Company believes that there are
no formal violations against it with respect to the Franklin Mines and
Franklin Mill. However, there can be no assurance that the Company
will be able to adequately comply with the conditions set forth in its
permit approval or that future violations will not arise and that such
violations will not lead to interruptions in operations at the
Franklin Mines or Franklin Mill.
(c) Litigation:
The Company is involved in various litigation as explained below:
(1) The Company 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. An
accrued liability of $135,000, an increase of $100,000 from the
December 31, 1997 financial statements, has been recorded. This
is the amount the Company estimates to be its portion of the
total claim and the $100,000 additional expense has been recorded
in the accompanying financial statements and is included in other
F-22
<PAGE>
WCM CAPITAL, INC.
(FORMERLY FRANKLIN CONSOLIDATED MINING CO., INC.)
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 8 - COMMITMENTS AND CONTINGENCIES (Continued):
(c) Litigation (continued):
(i) expenses. The Company and the other defendants are in settlement
negotiations with the plaintiff. The Company believes that its'
$135,000 accrual is enough to satisfy its' portion of a future
settlement. There can be no assurance that final settlement
agreements will be executed or that the Company would be
successful if the matter does proceed to arbitration.
(ii) 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. A default judgement 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.
(iii) The Company is in litigation with Redstone Securities, Inc.
("Redstone") a company which in the past had provided financial
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. More specifically, Redstone contends that it
should be able to sell its stock under Rule 144. 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. Plaintiffs counsel has expressed a
willingness to settle, the present demand being approximately
$350,000. Management of the Company feels Redstone's charges are
unfounded and plans to vigorously defend against these charges.
The shares received by Redstone are currently unrestricted.
Attorneys for the Company feel minimal liability if any appears
to exist, but in the unlikely event the Company is found 100%
liable, damages most likely will be limited to $127,200.
An unfavorable resolution of these matters could result in material
liabilities or charges that have not been reflected in the
accompanying financial statements.
F-23
<PAGE>
WCM CAPITAL, INC.
(FORMERLY FRANKLIN CONSOLIDATED MINING CO., INC.)
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 8 - COMMITMENTS AND CONTINGENCIES (Continued):
(d) NASDAQ Notification:
In 1996, the Securities and Exchange Commission approved certain
amendments to the listing requirements for continued listing on the
NASDAQ Small-Cap Market. On February 27, 1998, the Company received a
notification letter from NASDAQ informing them that as of that date,
the Company's common stock is not in compliance with the new minimum
bid price requirement of $1.00 which became effective on February 23,
1998. The review of the Company's common stock price was based upon
the price data covering the previous 30 consecutive trade dates. The
Company was given 90 calendar days, expiring May 28, 1998, in order to
regain compliance. The Company would be able to regain compliance if
its common stock trades at or above the minimum requirement of $1.00
for at least 10 consecutive trade days. In the event that the
Company's common stock does not regain compliance within the 90 day
period, NASDAQ has advised the Company that it will issue a delisting
letter which will identify the review procedures available to the
Company.
In order to mitigate the minimum bid price requirement the Company, on
May 26, 1998 effectuated a twenty-five for one reverse stock split.
After the reverse split the Company's stock price remained above the
$1.00 minimum bid price requirement for the necessary ten day period.
On or about November 10, 1998, the Company received another
notification about non-compliance with the minimum bid price
requirement. During the month of January 1999, the Company's stock
price maintained a bid price above $1.00 for ten consecutive days,
thereby bringing it back into compliance.
NOTE 9 - INCOME TAXES:
As of December 31, 1998, the Company had federal net operating loss
carryforwards of approximately $12,950,000 available to reduce future
federal taxable income which, if not used, will expire at various
dates through December 31, 2018. Changes in the ownership of the
Company may subject these loss carryforwards to substantial
limitations.
The Company has offset the deferred tax asset attributable to the
potential benefits from such net operating loss carryforwards and the
reduction in carrying value by an equivalent valuation allowance due
to the uncertainties related to the extent and timing of its future
taxable income. There are no other material temporary differences.
Deferred Tax Valuation
Asset Allowance
Balance at January 1, 1998, attributable to federal ------------ ---------
net operating loss carryforward $3,578,000 $3,578,000
Increase in federal net operating loss, year ended
December 31, 1998 861,000 861,000
Writedown of equipment received as part of
Sale of Gold Hill 70,000 70,000
---------- ----------
Balance at December 31, 1998 $4,509,000 $4,509,000
========== ==========
<PAGE>
WCM CAPITAL, INC.
(FORMERLY FRANKLIN CONSOLIDATED MINING CO., INC.)
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 10 - STOCKHOLDERS' EQUITY:
(1) Reverse Stock Split:
On May 26, 1998, the Company effectuated a twenty-five for one reverse
stock split. The accompanying financials give retroactive effect to
this reverse stock split.
(b) Issuances of Common Stock:
The following three 1997 common stock issuances reflect security
values that were established at the time the parties entered into
arm's-length agreements in 1996, and represent the respective value of
the security at those dates. The securities were issued pursuant to an
exemption provided by Section 4(2) of the Securities Act of 1933, and
are restricted securities.
On February 10, 1997, the Company issued 307,692 common shares upon
conversion of the $600,000 9.5% note at a conversion price of $1.95
per share, as adjusted (see Note 6).
On April 9, 1997, the Company issued 4,160 common shares to Dorothy
Kennec in exchange for extension of lease terms (see Note 8a) at an
aggregate value of $13,000 or $3.125 per share, as adjusted.
On June 19, 1997, the Company issued 20,000 common shares to Redstone
Securities as payment for approximately $50,000 in debt obligations.
(c) Common Stock Reserved for Issuance:
At December 31, 1998 and 1997, there were 11,600 shares of common
stock reserved for issuance upon the exercise of the 12.25% $145,000
convertible debentures (see Note 6).
NOTE 11 - 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 market value at time of issuance would be the
most reliable measure of
F-25
<PAGE>
WCM CAPITAL, INC.
(FORMERLY FRANKLIN CONSOLIDATED MINING CO., INC.)
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 11 - RESTATEMENT (Continued):
fair value for these transactions. As a result, the accompanying
financial statements reflect increases in various accounts such as
interest expense, legal costs, consulting fees and other items.
Accordingly, the resulting net loss (and the related net loss per
share), additional paid-in capital and accumulated deficit for 1996
and 1995 have been restated.
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 for services rendered:
<TABLE>
<CAPTION>
Number Estimate Market
of Value Value
Shares Per Share Per Share Increase
----------- ----------- ----------- --------
(as adjusted) (as adjusted) (as adjusted)
<S> <C> <C> <C> <C>
1996:
General and administrative expenses:
Consulting fees 40,000 $ 1.25 $ 6.25 $200,000
Professional fees 2,240 3.125 6.25 7,000
--------
Total 207,000
Interest expense - shares issued upon
conversion of debt at conversion price
based on 75% of market value 171,791 2.4375 3.25 139,580
--------
Increase in net loss $346,580
========
Increase in net loss per common share $ .01
========
1995:
Interest expense - excess of market value over principal of
shares issued upon conversion of loans from joint
venture partner 128,000 1.9531 3.9063 $249,600
Loss on settlement of claims by joint
venture partner 240,000 1.9531 3.9063 468,000
--------
Increase in net loss $717,600
========
Increase in net loss per common share $ .01
========
</TABLE>
F-26
<PAGE>
WCM CAPITAL, INC.
(FORMERLY FRANKLIN CONSOLIDATED MINING CO., INC.)
(a Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 11 - RESTATEMENT (Continued):
The effect of the preceding changes on the 1997 financial statements
were as follows:
1997 1997
(As Originally Presented) (As restated)
------------------------- -------------
Additional paid-in capital $16,350,575 $17,414,755
Deficit accumulated during the
development stage (13,104,544) (14,168,724)
F-27
<PAGE>
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
On February 23, 1998, the Company notified J.H. Cohn, LLP ("J.H. Cohn, LLP") of
its decision to dismiss the firm as its independent auditors. The decision to
dismiss J.H. Cohn, LLP was approved by the Board of Directors of the Company.
During the two most recent fiscal years of the Company, none of the reports of
J.H. Cohn, LLP on the financial statements of the Company contained an adverse
opinion or a disclaimer of opinion or was qualified or modified as to audit
scope, or accounting principles; however, J.H. Cohn, LLP has qualified or
modified its reports on the financial statements of the Company as a going
concern. During the two most recent fiscal years and any subsequent interim
period preceding the dismissal of J.H. Cohn, LLP, there were no disagreements
between the Company and J.H. Cohn, LLP concerning accounting principles or
practices, financial statement disclosure, or auditing scope or procedure which
would have caused J.H. Cohn, LLP to make a reference to the subject matter
thereof in its report had such disagreement not been resolved to the
satisfaction of J.H. Cohn, LLP.
The Company retained Lazar Levine & Felix LLP as its independent auditors for
fiscal year 1997and 1998.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Person;
Compliance with Section 16(a) of the Exchange Act
Name Age Position
J. Terry Anderson 51 Former Chairman, Former President,
Former Treasurer, Former Director
Robert Waligunda 52 Current President, Former Secretary, Director
Richard Brannon 49 Vice-President-West Coast Operations
Steven R. Schurman 47 Former Director
George E. Otten 72 Vice President, Former Director
William C. Martucci 56 Director
Robert W. Singer 51 Director
Ronald Ginsberg 61 Director
J. Terry Anderson. Mr. Anderson served as a director of the Company from August,
1991 through October, 1998, as the Company's Chairman of the Board from June,
1993 to October, 1998, as the Company's President from June, 1994 to October,
1998, and as the Company's Treasurer since August, 1995 through October, 1998.
From 1977 to the present, Mr. Anderson has served as Chairman, President, a
director and a principal stockholder of Anderson Chemical Company, a
privately-held company located in Litchfield, Minnesota which is engaged in the
manufacturer and marketing of sanitation and water treatment chemicals. Mr.
Anderson has also served as a member of the local advisory board of Norwest
Bank, Minnesota Central, N.A., Litchfield Minnesota. Mr. Anderson received a
Bachelor of Arts degree in theology from Ambassador College in Big Sandy, Texas
in 1972. Prior to that
29
<PAGE>
time, Mr. Anderson pursued a degree in Business Administration from the
University of Minnesota from 1965 to 1968.
Robert L. Waligunda. Mr. Waligunda has served as President and treasurer of the
Company since October 1998. Mr. Waligunda has served as a director of the
Company from 1985 and as Secretary of the Company from August 1995 to October
1998. From 1965 to the present, Mr. Waligunda has served as founder, President,
and principal stockholder of Sky Promotions, Inc., a Pittstown, New Jersey
marketing and management company involved in sales, advertising and marketing of
hot air balloons and inflatable products. He is the founder and director of
International Professional Balloon Pilots Racing Association, a member of the
advisory board of Aerostar International, Inc., the world's oldest and largest
balloon manufacturing company, and a member of the National Aeronautic
Association, the Experimental Aircraft Association, and the Airplane Owner and
Pilots Association. Mr. Waligunda received a Masters of Science degree in
guidance and psychological services from Springfield College in 1968.
Richard Brannon Mr. Brannon has served as the Vice President-West Coast
Operations since February 1996 and Secretary of the Company since October 1998.
Mr. Brannon is a California licensed real estate broker and 100% owner of A Reel
Mortgage, Inc., a mortgage and loan servicing company organized in 1991. Mr.
Brannon is a founding director of the California Trustee Mortgage Broker
Association, a not-for-profit corporation.
Steven R. Schurman Mr. Schurman served as a director of the Company from
February 1998 to October 1998. From 1985 to present, Mr. Schurman has served as
president of MinSearch, Inc., a Denver based company, specializing in mineral
project evaluation, exploration, project permitting, mapping and drill testing
of mines. Mr. Schurman is a senior exploration geologist and is a member of the
American Institute of Professional Geologists, American Institute of Mining
Engineers and Denver Region Exploration Geologists. Mr. Schurman has BS in
Geology from the Colorado State University.
George E. Otten Mr. Otten has served as Vice President of the Company since
October, 1998 and served as director of the Company since February, 1998 to
present. Mr. Otten was the first president of the Company from 1976 through 1985
and is the owner and operator of the Bates Hunter Mine under the name "Central
City Consolidated Mining Company" since 1985. Since 1997, Mr. Otten is the
president, director, and General Operating officer of all operations of Hunter
Gold Mining, Inc. Central City Colorado. Mr. Otten holds a degree in Business
Administration from Adams State College, Alamosa, Colorado.
William C. Martucci From 1974 to the present, Mr. Martucci has served as
president and chairman of United Grocers Clearing House, Inc., a privately held
company he founded to serve the coupon redemption, fulfillment and promotional
needs of manufacturers and retailers. Mr. Martucci is the sole stockholder,
director and president of POS Financial, Inc., an ATM/Kiosk network. In 1997 Mr.
Martucci founded and is the sole director, officer and shareholder of Shoppers
Online, Inc. which transmits full-motion video merchandising programs to retail
outlets. Additionally, Mr. Martucci is the sole shareholder, director and
president of U.S. Mining, Inc. ("USM") Mr. Martucci received a Bachelor of
Science in Philosophy from Florida International University in 1973.
RONALD GINSBERG Mr. Ginsberg is President of the Foodtown Supermarket
Cooperative, headquartered in Edison, New Jersey. He is also Secretary and
Director of Twin County Grocers located in Edison, New Jersey and Director of
the New Jersey Food Council. Mr. Ginsberg attended Drexel Institute of
Technology and Temple University.
ROBERT W. SINGER Mr. Singer currently holds the position of Assistant Majority
Leader in the New Jersey Secretary, Senate. Prior to being elected as a state
Senator, he served three terms in the New Jersey Assembly. In this latter
capacity, Mr. Singer was named Majority Whip, by his Colleagues and served as
both Vice Chairman of the Commerce and Regulated Professions Committee and
Community Development, Agriculture and Tourism Committee. Senator Singer has
distinguished himself, among his national peers, for his ability to create
environments where high technology and economic development can coexist with
environmental priorities. Additionally, the Senator is Vice-President of
Corporate Relations for Community/Kimball Medical Centers, and affiliate of the
St. Barnabas Health Care System.
30
<PAGE>
To the Company's knowledge and based solely on a review of such materials as are
required by the Securities and Exchange Commission, no officer, director or
beneficial holder of more than ten percent of the Company's issued and
outstanding shares of Common Stock ("Beneficial Owner") has filed any forms and
reports required to be filed pursuant to Section 16(a) of the Securities and
Exchange Act of 1934, as amended (the "Exchange Act"), during the fiscal year
ended December 31, 1998; and no officer, director or Beneficial Holder has not
submitted any representation letter to the Company stating that they are not
subject to the filing requirements under Section 16 of the Exchange Act for
fiscal year 1998.
Item 10. Executive Compensation
No compensation has been awarded to, earned by, or paid to any of the named
executives or directors of the Company during the fiscal year ended 1998.
Item 11. Security Ownership of Certain Beneficial Owners and Management
(a) Certain Beneficial Owners of Common Stock
NONE
(b) Security Ownership of Management of Common Stock
Name and Amount and Percentage
Address of Nature of of Class
Beneficial Beneficial
Owner Owner
J. Terry Anderson 325,897 8.24%
Robert L. Waligunda 7,700 .19%
George E. Otten -0- -0-
Steven R. Schurman -0- -0-
Richard Brannon -0- -0-
William C. Martucci -0- -0-
Ronald Ginsberg -0- -0-
Robert W. Singer 120,000 3.03%
Directors and Executive
Officers as a Group
- ----------
1. Includes 12,526 shares owned by Mr. Anderson, 400 shares owned by Bruce E.
Anderson Trust under which Mr. Anderson acts as Trustee and 19,661 owned by
Anderson Chemical Company for which Mr. Anderson serves as a director and
president and owns approximately 20% of the outstanding shares. Mr.
Anderson disclaims any beneficial ownership with respect to shares of the
Company owned by his brothers.
2. Includes 1,200 shares pledged as collateral to a non - affiliate
individual.
31
<PAGE>
Item 12. Certain Relationships and Related Transactions
In July 1996, Anderson Chemical Company advanced a loan to the Company for
working capital in the amount of $20,000. Such loan was evidenced by a
Promissory Note bearing interest at 12%. The principal amount and all accrued
and unpaid interest is currently outstanding.
As of March 31, 1998, J. Terry Anderson former director and officer of the
Company, has loaned the Company an additional $40,000 for working capital. On or
about September 18, 1998, J. Terry Anderson loaned the Company an additional
$12,000 evidenced by a demand note bearing interest at 12% per annum.
PART IV
Item 13. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Exhibits
The following documents are filed as exhibits herewith, unless otherwise
specified by an asterisk, and are incorporated herein by this reference:
Exhibit
Number Description of Exhibit
------ ----------------------
3.1 Amended and First Restated Certificate of Incorporation filed
with the Delaware Secretary of State on December 4, 1995.
(Incorporated by reference, Annual Report on Form 10KSB for year
ended December 31, 1995)
3.2 Amended and Restated By-Laws of the Company (Incorporated by
reference, Annual Report on Form 10-K for Year Ended December 31,
1994, Exhibit 3.2.)
4.1 Form of Indenture dated January 2, 1990 (Incorporated by
reference, Registration Statement on Form S-1, File No. 33-31418,
Exhibit 4.1.)
10.1 Mining Lease and Option to Purchase, dated November 12, 1976,
among Davis I. And Audrey I. Hayden, husband and wife, and
Dorothy L. Kennec, a single woman and trustee for her children,
and Gold Developers and Producers Incorporated (Incorporated by
reference, Registration Statement on Form S-1, File No. 33-31418,
Exhibit 10.1.)
10.2 Indenture, dated August 2, 1982, by and between the Company and
David I. and Dorothy I. Hayden. (Incorporated by reference,
Registration Statement on Form S-1, File No. 33-31418, Exhibit
10.2.)
10.3 Agreement dated August 2, 1982, by and between the Company and
David I. and Audrey I. Hayden. (Incorporated by reference,
Registration Statement on Form S-1, File. No. 33-31418, Exhibit
10.3)
10.4 Loan Agreement, dated May 18, 1992, by and between the Company
and various Lenders. (Incorporated by reference, current Report
on Form 8-K dated July 19, 1993, File No. 0-9416, Exhibit (d).)
32
<PAGE>
10.5 Zeus Joint Venture Agreement, dated February 26, 1993 between the
company and Island Investment Co. (Incorporated by reference,
Current Report on Form 8-K dated July 19, 1993, File No. 0-9416,
Exhibit (a) filed as exhibit to Schedule 13D filed by Gems &
Minerals Corp.)
10.6 Amended Loan Agreement, dated as of July 15, 1993, by and between
the Company and various Lenders. (Incorporated by reference,
Current Report on Form 8-K dated July 19, 1993, File No. 0-9416,
Exhibit (c).)
10.7 Scheduled 13D filed with the Commission on July 23, 1993 by Gems
& Minerals Corp. (Incorporated by reference, Current Report on
Form 8-K dated July 19, 1993, File No. 0-9416, Exhibit (a), filed
with exhibit (I) February 26, 1993 Zeus Joint Venture Agreement
and (ii) various Exchange Agreements between Gems & Minerals
Corp. and Anthony DiMatteo, Cheryl Peterson, John DiMatteo and
Joseph DiMatteo).
10.8 Amendment to Zeus Joint Venture Agreement, dated as of August 31,
1993, by and between the Company and Island Investment Co. and
Gems & Minerals Corp. (Incorporated by reference, Current Report
on Form 8-K, dated August 31,1993, File No. 0-9416, Exhibit (a)).
10.9 Exchange Letter Agreement, dated June 27, 1994, by and between
the Company and Island Investment Corp. and Gems and Minerals
Corp. (Incorporated by reference, Current Report on Form 8-K,
dated June 27, 1994, File No. 0-9416, Exhibit B.)
10.10 Purchase Agreement, dated November 22, 1994, by and between Gems
& Minerals Corp. and Audrey I. Hayden regarding certain portions
of the Hayden/Kennec Leases (Incorporated by reference, Annual
Report on Form 10-K for Year Ended December 31, 1994, Exhibit
10.10.)
10.11 Binding Exchange Letter Agreement, dated as of December 14, 1994,
by and between the Company and Island Investment Corp. and Gems &
Minerals Corp (Incorporated by reference, Annual Report on Form
10-K for Year Ended December 31, 1994, Exhibit 10.11.)
10.12 Standard Drilling Contract, dated December 15, 1994, by and
between the Company and American Mine Services Inc. (Incorporated
by reference, Annual Report on Form 10-K for Year Ended December
31, 1994, Exhibit 10.12.)
10.13 Schedule 13D filed with the Commission on March 20, 1995 by Gems
& Minerals Corp. (Incorporated by reference, Current Report on
Form 8-K dated March 20, 1995, File No. 0-9416, Exhibit (b).)
10.14 Amendment, dated August 24, 1995, to the Binding Share Agreement,
dated December 14, 1994. (Incorporated by reference, Current
Report on Form 8-K dated August 24, 1995, File No. 0-9416,
Exhibit B.)
10.15 Settlement Agreement dated September 27, 1996, by and among the
Company, Gems & Minerals Corp and Island Investment Corp.
(Incorporated by reference, Current Report on Form 8-K dated
September 27, 1995, File No. 0-9416, Exhibit A).
33
<PAGE>
10.16 Agreement, dated September 26, 1995, among the Company, Bruce R.
Anderson, J. Terry Anderson, Leif E. Anderson, Lindsay A.
Anderson and Carlo Sgrizzi regarding conversion of Anderson Loans
(Incorporated by reference, Current Report on Form 8-K dated
September 27, 1995, File No. 0-9416, Exhibit B.)
10.17 Schedule 13D filed with the Commission on December 28, 1995 by
Gems & Minerals Corp., Island Investment Corp. and Whitey Bear
Trust, as a group. (Incorporated by reference, Current Report on
Form 8-K dated December 26, 1995, File No. 0-9416, Exhibit B)
10.18 Assignment of the contract dated February 1, 1996, by and between
Newmineco, LLC, and Durango Metals, Inc., by Newmineco, LLC to
the Zeus Joint Venture. (Incorporated by reference, Annual Report
on Form 10-KSB for year ended December 31, 1996 File No. 0-9416,
Exhibit 10.18)
10.19 Novation Agreement, dated March 18, 1996, between Charles R. Rugg
(and Cindy McCullum, McCullum being the Lessor/Optioner as to the
Mascott Lode Claim only), original party and Durango Metals,
Inc., discharged partly, and Island Investment Corporation,
substantial party. (Incorporated by reference, Annual Report on
Form 10-KSB for year ended December 31, 1996, File No. 0-9416,
Exhibit 10.19)
10.20 Mining Lease dated March 18, 1996 between Island Investment Corp.
and Charles R. Rugg and Cindy McCullum (McCullum being the
Lessor/Optioner as to the Mascott Lode claim only. (Incorporated
by reference, Annual Report on Form 10-KSB for year ended
December 31, 1996, File No. 0-9416, Exhibit 10.20)
10.21 Letter of Intent, date June 5, 1996, by and between the Company
and Gems & Minerals Corp. (Incorporated by reference, Annual
Report Form 10-KSB for year ended December 31, 1996, File No.
0-9416, Exhibit 10.21)
10.22 Deed of Trust, dated July 3, 1996, between the Company and Colina
Oro Molina, Inc. (Incorporated by reference, Quarterly Report on
Form 10-QSB for Quarter Ended June 30, 1996, File No. 0-9416,
Exhibit B).
10.23 Memorandum of Understanding, dated July 3, 1996, between the
Company and Colina Oro Molina, Inc. (Incorporated by reference,
Quarterly Report on Form 10-QSB for Quarter Ended June 30, 1996,
File No. 0-9416, Exhibit B)
10.25 Deed, dated July 3, 1996, between Colina Oro Molina, Inc. and the
Company. (Incorporated by reference, Quarterly Report on Form
10-QSB, for the Quarter Ended June 30, 1996, File No. 0-9416,
Exhibit B)
10.24 Promissory Note, dated July 3, 1996, by the Company in favor of
Colina Oro Molina, Inc. in the amount of $2,500,000 (Incorporated
by reference, Quarterly Report on Form 10-QSB for Quarter Ended
June 30, 1996, File No. 0-9416, Exhibit B)
10.26 Promissory Note dated July 6, 1996 by the Company in favor of
Anderson Chemical Co. in the aggregate principal amount of
$20,000. (Incorporated by reference, Annual Report on Form 10-KSB
for year ended December 31, 1996, File No. 0-9416, Exhibit
10.26).
34
<PAGE>
10.27 Amendment No. 1 to Schedule 13D, dated July 10, 1996, filed with
the Commission by Gems & Minerals Corp., Island Investment Corp.
and Whitey Bear Trust, as a Group. (Incorporated by reference,
Annual Report on Form 10-KSB for year ended December 31, 1996,
File No. 0-9416, Exhibit 10.27).
10.28 First Amendment to the Joint Venture Agreement of Zeus No. 1
Investments, a California general partnership, dated August 15,
1996.(Incorporated by reference, Annual Report on Form 10-KSB for
year ended December 31, 1996, File No. 0-9416, Exhibit 10.28)
10.29 Letter Agreement, dated September 5, 1996, by and between Mrs.
Audrey I. Hayden and Gems & Minerals Corp.; Letter Agreement
dated September 12, 1996, by and between Mrs. Audrey I. Hayden
and the Company. (Incorporated by reference, Annual Report on
Form 10-KSB for year ended December 31, 1996, File No. 0-9416,
Exhibit 10.29)
10.30 Assignment, dated September 26, 1996, by Gems & Minerals Corp. in
favor of the Company (incorporated by reference, Quarterly Report
on Form 10-QSB for Quarter Ended September 30, 1996, File No.
0-9416, Exhibit A)
10.31 Secured Promissory Note, dated September 26, 1996, by the Company
in favor of Gems & Minerals Corp. in the principal amount of
$600,000 (Incorporated by reference, Quarterly Report on Form
10-QSB, for the Quarter Ended September 30, 1996, File No.
0-9416, Exhibit B)
10.32 Amendment dated November 19, 1996, mining lease and Option to
Purchase, dated November 12, 1996, between the Company and Mrs.
Dorothy Kennec. (Incorporated by reference, Annual Report on Form
10-KSB for year ended December 31, 1996, File No. 0-9416, Exhibit
10.31).
10.33 Amendment No. 2 to Schedule 13D, dated December 26, 1996, filed
with the Commission by Gems & Minerals Corp., Island Investment
Corp. and Whitey Bear Trust as a group. (Incorporated by
reference, Annual Report on Form 10-KSB for year ended December
31, 1996, File No. 0-9416, Exhibit 10.33
*10.34 Lease Extension Agreement dated November 21, 1997 between Dorothy
L. Kennec, individually and Dorothy L. Kennec, Trustee and the
Company.
*10.35 Assumption of Debt dated December 1, 1997 between the Company and
Gems & Minerals Corp.
*10.36 Promissory Note dated March 5, 1998 between the Company and POS
Financial, Inc.
*10.37 Termination Letter dated March 6, 1998 between William Martucci,
POS Financial, Inc. and US Mining, Inc. and the Company.
10.38 Letter of Intent, dated September 25, 1997, by and between the
Company and William C. Martucci (Incorporated by reference on
Form 8-K dated October 20, 1997, File No. 0-9416, Exhibit A).
13 Proxy Statement to Stockholders of the Company for the fiscal
year ended December 31, 1994. Except for those portions of such
Proxy Statement to Stockholders, expressly incorporated by
reference into this Report, such Annual Report to Stockholders is
solely for the information of the Securities and Exchange
Commission and Shall not be deemed a "filed" document.
35
<PAGE>
(Incorporated by reference, Annual Report on Form 10-KSB for Year
Ended December 31, 1995).
24.1 Consent of Gifford A. Dieterle, dated June 3, 1994, as an Expert
with respect to the geological reports dated December 7, 1993,
and May 16, 1994 filed as supplemental information with the
Company's Annual Report on Form 10-K for the year ended December
31, 1994. (Incorporated by reference, Annual Report on Form 10-K
for Year Ended December 31, 1993, File No. 0-9416, Exhibit 23.)
28.1 Maps and Geological Reports prepared by consultant Gifford A.
Dieterle dated December 7, 1993 and May 16, 1994. (Incorporated
by reference, Annual Report on Form 10-K for Year Ended December
31, 1993, File No. 0-9416, Exhibit 23.)
28.3 Letter from Messrs., Bruce, Terry, Leif, and Lindsay Anderson
dated June 2, 1994 waiving defaults under certain promissory
notes. (Incorporated by reference, Annual Report on Form 10-K for
Year Ended December 31, 1993, File No. 0-9416, Exhibit 23.)
28.4 Letter from Gems & Minerals Corp. dated June 4, 1994 amending
Zeus Joint Venture Agreement regarding waiver of joint venture
defaults. (Incorporated by reference, Annual Report on Form 10-K
for Year Ended December 31, 1993, File No. 0-9416, Exhibit 23.)
28.5 Letter from Gems & Minerals Corp. dated March 27, 1995 amending
Zeus Joint Venture Agreement regarding waiver of joint venture
defaults and extending the upset date and promissory note due
date. (Incorporated by reference, Annual Report on Form 10-K for
Year Ended December 31, 1994, File No. 0-9416, Exhibit 28.5.)
28.6 Letter from Messrs., Bruce, Terry, Leif and Lindsay Anderson
dated March 27, 1995 waiving defaults under certain promissory
notes and extending due dates on such notes to September 30, 1995
(Incorporated by reference, Annual Report on Form 10-K for Year
Ended December 31, 1994, File No. 0-9416, Exhibit 28.6.)
28.7 Letter from Anderson Chemical Company dated March 27, 1995
waiving defaults under certain promissory notes and extending due
date on such notes to September 30, 1995. (Incorporated by
reference, Annual Report on Form 10-K for Year Ended December 31,
1994, File No. 0-9416, Exhibit 28.6.) ------------
- ----------
* Filed herewith
Reports on Form 8-K
Current Report on Form 8K, dated March 5, 1997.
Current Report on Form 8K, dated October 20, 1997
36
<PAGE>
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.
(Formerly FRANKLIN CONSOLIDATED MINING CO., INC.)
/s/ Robert Waligunda
April 15, 1999 _____________________________________
Robert Waligunda, President/Treasurer
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
- -------------------------
Robert Waligunda Director, President April 15, 1999
and Treasurer
/s/ Richard Brannon
- -------------------------
Richard Brannon Vice President/Secretary April 15, 1999
/s/ George Otten
- -------------------------- Vice President April 15, 1999
George Otten
/s/ William C. Martucci Director April 15, 1999
- --------------------------
William C. Martucci
/s/ Ronald Ginsberg Director April 15, 1999
- --------------------------
Ronald Ginsberg
/s/ Robert W. Singer Director April 15, 1999
- --------------------------
Robert W. Singer
37
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
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<PP&E> 6,914,095
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