SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB AMENDED
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
OR
[TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended 12/31/95 Commission File No. 0-9416
FRANKLIN CONSOLIDATED MINING CO., INC.
(Name of small business issuer in its charter)
DELAWARE 13-2878202
(State or other jurisdiction of (IRS 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:
Securities Registered under Section 12(g) of the Exchange Act:
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. $ 1,060.00
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock as of a specified date within the past 60
days
DOCUMENTS INCORPORATED BY REFERENCE IN PART III
Proxy Statement furnished to Security holders of the Company in connection with
the 1995 Annual Meeting of Shareholders of the Company, held November 30, 1995
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
INDEX TO FINANCIAL STATEMENTS
(Item 7)
PAGE
----
REPORTS OF INDEPENDENT PUBLIC ACCOUNTANTS F-2/4
BALANCE SHEET
DECEMBER 31, 1995 F-5
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994 AND
PERIOD FROM DECEMBER 1, 1976 (INCEPTION) TO
DECEMBER 31, 1995 F-6
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1994 AND
PERIOD FROM DECEMBER 1, 1976 (INCEPTION) TO
DECEMBER 31, 1995 F-7/13
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994 AND
PERIOD FROM DECEMBER 1, 1976 (INCEPTION) TO
DECEMBER 31, 1995 F-14/15
NOTES TO FINANCIAL STATEMENTS F-16/29
* * *
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
Franklin Consolidated Mining, Co., Inc.
We have audited the accompanying balance sheet of FRANKLIN CONSOLIDATED MINING
CO., INC. (A Development Stage Enterprise) as of December 31, 1995, and the
related statements of operations, stockholders' equity and cash flows for the
year ended December 31, 1995 and for the period from December 1, 1976
(inception) to December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Franklin Consolidated Mining
Co., Inc. as of December 31, 1995, and its results of operations and cash flows
for the year ended December 31, 1995 and for the period from December 1, 1976
(inception) to December 31, 1995, in conformity with generally accepted
accounting principles.
As discussed in Note 6, the Company has been notified by agencies of the State
of Colorado that it must correct violations of certain environmental regulations
and increase its land reclamation bond from $93,000 to $252,000 to maintain
certain mining permits. As of April 10, 1996, the Company had not posted the
required bond. In addition, management had not been able to determine what the
ultimate costs of correcting the violations will be or what the ultimate
effects, if any, will be on the Company's financial statements if the Company is
not able to post the bond and take the appropriate corrective actions. No
provision has been made in the accompanying financial statements for any
liability or asset impairment that may result from this matter.
F-2
<PAGE>
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As further discussed in Note 1 to the
financial statements, the Company is a development stage enterprise whose
operations have generated recurring losses and cash flow deficiencies from its
inception and a substantial working capital deficiency as of December 31, 1995.
As a result, it is in default with respect to payments on its outstanding
convertible debentures, delinquent with respect to the payment of real estate
taxes, in need of financing in connection with the reclamation bond and the
costs of eliminating the violations of environmental regulations described in
the preceding paragraph and substantially dependent on its joint venture partner
for financing. Such matters raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans concerning these matters are
also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
As explained in Note 4, the accompanying financial statements reflect
restatements of amounts reflected in the financial statements originally filed
by the Company with the Securities and Exchange Commission attributable to
changes in the prices used by the Company to value shares of common stock it
issued to settle obligations and pay for services.
J. H. COHN LLP
Roseland, New Jersey
March 23, 1996, except for the
environmental matters described
in Note 6 as to which the date
is April 10, 1996
F-3
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders
Franklin Consolidated Mining Co., Inc.
New York, New York
We have audited the accompanying statement of operations, stockholders' equity,
and cash flows of Franklin Consolidated Mining Co., Inc. (A Development Stage
Enterprise) for the year ended December 31, 1994. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Franklin
Consolidated Mining Co., Inc. (A Development Stage Enterprise) for the year
ended December 31, 1994 in conformity with generally accepted accounting
principles.
WOLINETZ, GOTTLIEB & LAFAZAN, P.C.
Rockville Centre, New York
March 8, 1995
F-4
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
BALANCE SHEET
DECEMBER 31, 1995
ASSETS
Current assets - cash $ 118,176
Mining, milling and other property and equipment, net of
accumulated depreciation and depletion of $1,715,194 3,848,114
Mining reclamation bonds 45,000
------------
Total $ 4,011,290
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Convertible debentures $ 145,000
Accounts payable and accrued expenses 298,016
Loans payable to joint venture partner 313,688
------------
Total current liabilities 756,704
Convertible notes 200,000
Excess of equity in net losses of joint venture
over investment 120,270
------------
Total liabilities 1,076,974
------------
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.01 per share; 100,000,000
shares authorized; 69,135,920 shares issued and
outstanding 691,359
Additional paid-in capital 13,189,102
Deficit accumulated in the development stage (10,946,145)
------------
Total stockholders' equity 2,934,316
------------
Total $ 4,011,290
============
See Notes to Financial Statements.
F-5
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994
AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION)
TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
Cumulative
from
1995 1994 Inception
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Sales $ 876,082
Interest income $ 1,060 $ 851 538,536
Other income 75,000
------------ ------------ ------------
Totals 1,060 851 1,489,618
------------ ------------ ------------
Expenses:
Mine expenses 3,360,793
Write-down of inventories 223,049
Depreciation, depletion and
amortization 122,143 121,855 1,910,543
General and administrative
expenses 227,287 151,062 4,297,731
Interest 342,034 67,861 743,200
Amortization of debt issuance
expense 6,843 683,047
Equity in net loss of joint
venture 15,540 34,826 120,270
Loss on settlement of claims
by joint venture partner 936,000 936,000
Loss on settlement of litigation 100,000
Loss on investment in oil and
gas wells 61,130
------------ ------------ ------------
Totals 1,643,004 382,447 12,435,763
------------ ------------ ------------
Net loss $ (1,641,944) $ (381,596) $(10,946,145)
============ ============ ============
Weighted average shares outstand-
ing 49,035,351 48,556,123
============ ============
Net loss per common share $ (.03) $ (.01)
============ ============
</TABLE>
See Notes to Financial Statements.
F-6
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1994
AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION)
TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional in the
Common Paid-in Development Treasury
Shares Stock Capital Stage Stock Total
----------- ----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Issuance of common
stock:
Cash 155,000 $ 1,550 $ 41,550 $ 43,100
Noncash - re-
lated parties 925,000 9,250 9,250
in exchange
for shares of
Gold Devel-
opers and
Producers,
Inc 1,095,000 10,950 6,484 17,434
Net loss $(45,584) (45,584)
----------- ----------- ----------- ----------- -----------
Balance, December
31, 1977 2,175,000 21,750 48,034 (45,584) 24,200
Issuance of com-
mon stock:
Pursuant to
public offer-
ing, net of
underwriting
expenses of
$11,026 588,200 5,882 278,113 283,995
Cash 225,000 2,250 240,627 242,877
Noncash 5,000 50 4,950 5,000
Net loss (66,495) (66,495)
----------- ----------- ----------- ----------- -----------
Balance, December
31, 1978 2,993,200 29,932 571,724 (112,079) 489,577
Issuance of common
stock:
Cash 231,850 2,318 438,932 441,250
Noncash - re-
lated parties 40,000 400 59,600 60,000
Noncash - other 6,675 67 13,283 13,350
Net loss (128,242) (128,242)
----------- ----------- ----------- ----------- -----------
Balance, December
31, 1979 3,271,725 32,717 1,083,539 (240,321) 875,935
Issuance of com-
mon stock:
Cash 289,750 2,898 837,102 840,000
Noncash 59,500 595 118,405 119,000
Net loss (219,021) (219,021)
----------- ----------- ----------- ----------- -----------
Balance, December
31, 1980 3,620,975 36,210 2,039,046 (459,342) 1,615,914
</TABLE>
F-7
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1994
AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION)
TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional in the
Common Paid-in Development Treasury
Shares Stock Capital Stage Stock Total
----------- ----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Issuance of com-
stock:
Cash 65,625 $ 656 $ 261,844 $ 262,500
----------- ----------- ----------- ----------- -----------
Balance, pre-
stock split 3,686,600 36,866 2,300,890 $ (459,342) 1,878,414
Issuance of common
stock:
Pursuant to a
four-for-one
stock split 11,059,800 110,598 (110,598)
Cash 578,000 5,780 552,220 558,000
Noncash 104,000 1,040 102,960 104,000
Commission on sale
of common stock (57,300) (57,300)
Net loss (288,105) (288,105)
----------- ----------- ----------- ----------- -----------
Balance, December
31, 1981 15,428,400 154,284 2,788,172 (747,447) 2,195,009
Issuance of common
stock:
Cash 861,006 8,610 755,516 764,126
Noncash 162,000 1,620 160,380 162,000
Commission on
sale of common
stock (56,075) (56,075)
Net loss (287,291) (287,291)
----------- ----------- ----------- ----------- -----------
Balance, December
31, 1982 16,451,406 164,514 3,647,993 (1,034,738) 2,777,769
Issuance of com-
mon stock:
Cash 1,273,134 12,732 1,176,818 1,189,550
Noncash 70,834 708 70,126 70,834
Exercise of
stock op-
tions by:
Related par-
ties 267,500 2,675 264,825 267,500
Others 4,000 40 3,960 4,000
Commission on sale
of common stock (124,830) (124,830)
Net loss (749,166) (749,166)
----------- ----------- ----------- ----------- -----------
Balance, December
31, 1983 18,066,874 180,669 5,038,892 (1,783,904) 3,435,657
</TABLE>
F-8
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1994
AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION)
TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional in the
Common Paid-in Development Treasury
Shares Stock Capital Stage Stock Total
----------- ----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Issuance of common
stock:
Cash 1,201,700 $ 12,017 $ 1,139,683 $ 1,151,700
Noncash 27,500 275 27,225 27,500
Exercise of
stock options
by related
parties 200,000 2,000 198,000 200,000
Commission on sale
of common stock (90,950) (90,950)
Net loss $(301,894) (301,894)
----------- ----------- ----------- ----------- -----------
Balance, December
31, 1984 19,496,074 194,961 6,312,850 (2,085,798) 4,422,013
Issuance of com-
mon stock:
Cash 421,308 4,213 295,866 300,079
Noncash 10,000 100 7,400 7,500
Exercise of
stock op-
tions by:
Related par-
ties 200,000 2,000 148,000 150,000
Others 1,000 10 740 750
Commission on sale
of common stock (3,462) (3,462)
Net loss (133,929) (133,929)
----------- ----------- ----------- ----------- -----------
Balance, December
31, 1985 20,128,382 201,284 6,761,394 (2,219,727) 4,742,951
Issuance of common
stock:
Cash 569,000 5,690 294,810 300,500
Noncash - re-
lated parties 160,000 1,600 78,400 80,000
Noncash - others 135,000 1,350 52,650 54,000
Net loss (227,788) (227,788)
----------- ----------- ----------- ----------- -----------
Balance, December
31, 1986 20,992,382 209,924 7,187,254 (2,447,515) 4,949,663
</TABLE>
F-9
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1994
AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION)
TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional in the
Common Paid-in Development Treasury
Shares Stock Capital Stage Stock Total
----------- ----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common
stock:
Cash 2,604,368 $ 26,044 $ 1,261,257 $ 1,287,301
Noncash - re-
lated parties 202,000 2,020 68,880 70,900
Noncash - other 37,500 375 36,875 37,250
Commission on sale
of common stock (110,243) (110,243)
Net loss $(730,116) (730,116)
----------- ----------- ----------- ----------- -----------
Balance, December
31, 1987 23,836,250 238,363 8,444,023 (3,177,631) 5,504,755
Issuance of common
stock - noncash
- related par-
ties 200,000 2,000 48,000 50,000
Net loss (386,704) (386,704)
Purchase of
50,000 shares of
treasury stock -
at cost $(12,500) (12,500)
----------- ----------- ----------- ----------- ----------- ------------
Balance, December
31, 1988 24,036,250 240,363 8,492,023 (3,564,335) (12,500) 5,155,551
Issuance of common
stock:
Cash 678,000 6,780 103,720 110,500
Noncash - others 283,666 2,836 31,030 33,866
Noncash - re-
lated parties 210,000 2,100 29,400 31,500
Private place-
ment:
Cash 2,275,000 22,750 22,750
Debt issuance
expense 455,000 455,000
Conversion of
debentures 1,050,000 10,500 94,500 105,000
Exercise of
stock options 300,000 3,000 42,000 45,000
Commission on sale
of common stock (1,500) (1,500)
</TABLE>
F-10
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1994
AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION)
TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional in the
Common Paid-in Development Treasury
Shares Stock Capital Stage Stock Total
----------- ----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Compensation re-
sulting from
stock options
granted $39,000 $39,000
Net loss $ (1,279,804) (1,279,804)
------------ ------------ ------------ ------------ ------------ ------------
Balance, December
31, 1989 28,832,916 288,329 9,285,173 (4,844,139) $ (12,500) 4,716,863
Sale of Under-
writer's stock
warrants 100 100
Issuance of common
stock:
Cash 335,000 3,350 41,875 45,225
Noncash - others 39,855 399 5,579 5,978
Conversion of
debentures 160,000 1,600 30,400 32,000
Net loss (1,171,962) (1,171,962)
------------ ------------ ------------ ------------ ------------ ------------
Balance, December
31, 1990 29,367,771 293,678 9,363,127 (6,016,101) (12,500) 3,628,204
Issuance of common
stock:
Cash - others 1,799,576 17,996 78,935 96,931
Cash - related
parties 1,800,000 18,000 72,000 90,000
Noncash -
others 1,183,724 11,837 47,350 59,187
Conversion of
debentures 3,731,000 37,310 588,690 626,000
Exercise of
stock options 250,000 2,500 10,000 12,500
Conversion of
notes payable 250,000 2,500 12,500 15,000
Net loss (764,926) (764,926)
------------ ------------ ------------ ------------ ------------ ------------
Balance, December
31, 1991 38,382,071 383,821 10,172,602 (6,781,027) (12,500) 3,762,896
Issuance of common
stock:
Cash - others 2,021,923 20,219 149,389 169,608
Cash - related
parties 630,000 6,300 42,700 49,000
Noncash -
others 1,729,609 17,296 348,762 366,058
Noncash - re-
lated parties 12,120 121 485 606
</TABLE>
F-11
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1994
AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION)
TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional in the
Common Paid-in Development Treasury
Shares Stock Capital Stage Stock Total
----------- ----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Noncash - exer-
cise of op-
tions by re-
lated parties 2,050,000 $ 20,500 $ 82,000 $ 102,500
Conversion of
debentures 540,000 5,400 156,600 162,000
Commission on
sale of com-
mon stock -
related par-
ties (7,123) (7,123)
Net loss $ (1,343,959) (1,343,959)
------------ ------------ ------------ ------------ ------------ ------------
Balance, December
31, 1992 45,365,723 453,657 10,945,415 (8,124,986) $ (12,500) 3,261,586
Issuance of common
stock:
Cash - others 873,400 8,734 125,230 133,964
Cash - related
parties 777,000 7,770 69,930 77,700
Noncash - others 150,000 1,500 13,500 15,000
Noncash - set-
tlement of
litigation 1,000,000 10,000 90,000 100,000
Noncash - exer-
cise of op-
tions by re-
lated parties 200,000 2,000 8,000 10,000
Conversion of
debentures 140,000 1,400 33,600 35,000
Conversion of
loan 100,000 1,000 9,000 10,000
Net loss (797,619) (797,619)
------------ ------------ ------------ ------------ ------------ ------------
Balance, December
31, 1993 48,606,123 486,061 11,294,675 (8,922,605) (12,500) 2,845,631
Retirement of
treasury stock (50,000) (500) (12,000) 12,500
Net loss (381,596) (381,596)
------------ ------------ ------------ ------------ ------------ ------------
Balance, December
31, 1994 48,556,123 485,561 11,282,675 (9,304,201) 2,464,035
</TABLE>
F-12
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1994
AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION)
TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional in the
Common Paid-in Development Treasury
Shares Stock Capital Stage Stock Total
----------- ----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common
stock:
Settlement of
claims by
joint venture
partner 6,000,000 $ 60,000 $ 876,000 $ 936,000
Repayments of
loan (includ-
ing imputed
interest) from
joint venture
partner 3,200,000 32,000 467,200 499,200
Repayments of
long-term debt
and accrued
interest - re-
lated parties 8,679,797 86,798 590,227 677,025
Exchange of
shares for
profit parti-
cipation in-
terests 2,700,000 27,000 (27,000)
Net loss $ (1,641,944) (1,641,944)
------------ ------------ ------------ ------------ ------------ ------------
Balance, Decem-
ber 31, 1995 69,135,920 $ 691,359 $ 13,189,102 $(10,946,145) $ -- $ 2,934,316
============ ============ ============ ============ ============ ============
</TABLE>
See Notes to Financial Statements.
F-13
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION)
TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
Cumulative
from
1995 1994 Inception
----------- ----------- ------------
<S> <C> <C> <C>
Operating activities:
Net loss $(1,641,944) $(381,596) $(10,946,145)
Adjustments to reconcile net
loss to net cash used in oper-
ating activities:
Depreciation and depletion 122,143 121,855 1,910,543
Amortization of debt issuance
expense 6,843 683,047
Value of common stock issued
for:
Services and interest 249,600 1,219,877
Settlement of litigation 100,000
Settlement of claims by
joint venture partner 936,000 936,000
Compensation resulting from
stock options granted 311,900
Value of stock options granted
for services 112,500
Equity in net loss of joint
venture 15,540 34,826 120,270
Other (7,123)
Changes in operating assets
and liabilities:
Other current assets 71 924
Accounts payable and accrued
expenses 138,305 72,164 461,749
----------- ----------- ------------
Net cash used in operat-
ing activities (180,285) (144,984) (5,097,382)
----------- ----------- ------------
Investing activities:
Purchases and additions to min-
ing, milling and other proper-
ty and equipment (5,035,354)
Purchases of mining reclamation
bonds (16,000) (45,000)
Decrease in security deposits 3,667
Deferred mine development costs
and other expenses (234,435) (255,319)
----------- ----------- ------------
Net cash used in invest-
ing activities (234,435) (12,333) (5,335,673)
----------- ----------- ------------
</TABLE>
F-14
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION)
TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
Cumulative
from
1995 1994 Inception
----------- ----------- ------------
<S> <C> <C> <C>
Financing activities:
Issuances of common stock $ 8,460,657
Issuance of Underwriter's stock
warrants 100
Commissions on sales of common
stock (381,860)
Purchases of treasury stock (12,500)
Payments of deferred under-
writing costs (63,814)
Proceeds from exercise of
stock options 306,300
Issuance of convertible de-
bentures and notes $ 200,000 1,305,000
Proceeds of loans from joint
venture partner 331,980 $ 156,581 526,288
Payments of debt issuance
expenses (164,233)
Proceeds of other notes and
loans payable 6,000 688,000
Repayments of other notes and
loans payable (10,000) (120,000)
Proceeds of loans from affiliate 3,475 55,954
Repayments of loans from affili-
ate (48,661)
Net cash provided by financ-
ing activities 531,980 156,056 10,551,231
----------- ----------- ------------
Increase (decrease) in cash 117,260 (1,261) 118,176
Cash, beginning of period 916 2,177 --
----------- ----------- ------------
Cash, end of period $ 118,176 $ 916 $ 118,176
=========== =========== ============
Supplemental disclosure of cash flow data:
Interest paid $ 4,441 $ 19,577 $ 298,868
=========== =========== ============
</TABLE>
See Notes to Financial Statements.
F-15
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Note 1 - Organization and basis of presentation:
Organization:
Franklin Consolidated Mining Co., Inc. (the "Company"), which was
originally incorporated on December 1, 1976 under the laws of the
State of Delaware, is principally engaged in the exploration,
development and mining of precious and nonferrous metals, including
gold, silver, lead, copper and zinc. The Company owns directly or has
an indirect interest in a number of precious and nonferrous metals
properties.
The Company holds the exclusive right to explore, develop, mine and
extract all minerals located in 28 patented mining claims comprising
approximately 322 acres, in which the Company holds 100% lease
interests (the "Hayden/Kennec Leases") and 23 additional owned or
leased mining properties (collectively, the "Franklin Mine"), all of
which are located near Idaho Springs in Clear Creek County, Colorado.
It also constructed a crushing and floatation mill which is located on
the site of the Franklin Mine (the "Franklin Mill").
During February 1993, the Company entered into a Joint Venture
Agreement with Island Investment Corp. ("Island"), which at the time
was an unaffiliated company, and formed Zeus No. 1 Investments (the
"Joint Venture"), a California general partnership, for the purpose of
developing the Franklin Mine and Mill. Among other things, the Zeus
Joint Venture Agreement (i) required Island to provide both technical
and financial support to the Joint Venture, (ii) required the Company
to contribute to the Joint Venture the rights to the exclusive use of
its assets (including its lease interests) related to the Franklin
Mine and Mill and (iii) originally provided that after the return of
any initial capital contributions and certain priority payments,
Island and the Company would receive 50% of any partnership income
until each party had received $15,000,000; thereafter Island and the
Company would receive 73% and 27%, respectively, of any partnership
income. In May 1993, Island assigned its interest in the Joint Venture
to its 91%-owned subsidiary, Gems & Minerals Corp. ("Gems").
Effective in August 1994, the Company and Island agreed to amend the
Zeus Joint Venture Agreement to provide for, among other things, the
waiver of priority payments and an adjustment to the distribution
arrangement whereby 70% and 30% of the Joint Venture's income or loss
(as defined) would be allocated to Gems and the Company, respectively.
Effective in September 1995, the Company, Island and Gems agreed to
further amend the Zeus Joint Venture Agreement to provide for, among
other things, the allocation of 82.5% and 17.5% of the Joint Venture's
income or loss (as defined) to Gems and the Company, respectively (see
Note 4).
F-16
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Note 1 - Organization and basis of presentation (continued):
Organization (concluded):
During 1993, operations at the mining properties consisted primarily
of the efforts by the Joint Venture to develop and improve mineral
recovery methodology, which were financed primarily by Island's cash
capital contributions of approximately $430,000. During 1994, such
operations consisted primarily of repair and remediation work to
comply with environmental regulatory requirements, further site
preparation, metallurgical analysis and the planning of an exploratory
drilling program to further prove the Company's reserves. During 1995,
such operations consisted primarily of a comprehensive core drilling
and analysis program (the "Analysis Program").
Although there are extensive shafts, tunnels and a mill in place on
the Franklin Mine site which management believes would support a 150
ton per day operation, the Joint Venture and the Company had not
conducted any significant commercial mining operations and had not
generated any significant revenues through December 31, 1995 and,
therefore, the Company and the Joint Venture are still in the
development stage. Although management of the Company expects the
Joint Venture to commence some commercial mining and milling
activities at the Franklin Mine during 1996, it does not anticipate
that the Company will derive any significant revenues or cash flows
from its 17.5% interest in such start-up operations during 1996.
Basis of presentation:
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. However, the Company is
a development stage enterprise whose operations have generated
recurring losses and cash flow deficiencies from its inception. As of
December 31, 1995, it had an accumulated deficit of approximately
$10,946,000 and a working capital deficiency of $639,000. As explained
in Note 5, the Company was in default with respect to the payment of
the principal of and the accrued interest on its outstanding
convertible debentures which totaled $158,000 as of December 31, 1995.
As explained in Note 6, the Company was delinquent with respect to the
payment of $44,000 of real estate taxes as of December 31, 1995 and
was subject to a regulatory order to increase its land reclamation
bond by $159,000 and complete the remediation of certain violations of
environmental regulations as of April 10, 1996. The Company is
substantially dependent on its Joint Venture partner for its
short-term financing and the funding of the development of its
principal mining and milling properties which were not operational as
of December 31, 1995. Such matters raise substantial doubt about the
Company's ability to continue as a going concern.
F-17
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Note 1 - Organization and basis of presentation (concluded):
Basis of presentation (concluded):
The Company's ability to continue as a going concern will depend,
primarily, on whether it can obtain additional debt or equity
financing from its Joint Venture partner or from other sources to fund
its existing obligations and the additional obligations it will incur
while its mining resources are being developed, the continued
forbearance of the holders of its convertible debentures and,
ultimately, the ability of the Joint Venture, in which it holds a
17.5% interest and to which it has committed substantially all of its
resources, to conduct profitable mining and milling operations on a
sustained basis. As also explained in Note 5, the Company did obtain
approximately $200,000 from the private placement of convertible notes
subsequent to December 31, 1995. Management of the Company does not
believe that operations of the Joint Venture will generate any
significant profits or cash flows for the Company during 1996.
However, management believes, but cannot assure, that the Company's
Joint Venture partner will continue to provide the remainder of the
funds the Company will need to operate through December 31, 1996.
Accordingly, the accompanying financial statements do not include any
adjustments relating to the recoverability and classification of
recorded asset amounts or the amounts and classifications of
liabilities that might be necessary should the Company be unable to
continue as a going concern.
Note 2 - Summary of significant accounting policies:
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Mining, milling and other property and equipment: Mining, milling and
other property and equipment is recorded at cost. Costs incurred to
improve and develop mining and milling properties are capitalized.
Mine development expenditures incurred substantially in advance of
production are capitalized.
Depletion of mining and milling improvements and mine development
expenditures is computed using the units of production method based on
probable reserves (there were no charges for depletion in 1995 and
1994 since the Company's principal mining and milling facilities were
not in operation). Depreciation of equipment is computed using the
straight-line method over the estimated useful lives of the related
assets.
F-18
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Note 2 - Summary of significant accounting policies (continued):
Joint Venture:
The Company accounts for its investment in the Joint Venture pursuant
to the equity method. As a general partner in the Joint Venture, the
Company would be liable to creditors and certain other parties for any
obligations the Joint Venture might ultimately be unable to satisfy.
Accordingly, the Company records its equity in the net losses of the
Joint Venture even though they exceed the Company's total investment.
Revenue recognition:
Revenues from sales of mineral concentrates will be recognized by the
Company and the Joint Venture only upon receipt of final settlement
funds from the smelter.
Environmental remediation:
Environmental remediation costs are accrued based on estimates of
known environmental remediation exposures and, generally, charged to
expense as incurred.
Issuances of common stock:
Noncash issuances of common stock in exchange for assets and services
are recorded at their estimated fair market values.
Income taxes:
The Company accounts for income taxes pursuant to Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes,"
which utilizes an asset and liability approach to financial accounting
and reporting for income taxes. Under this approach, deferred income
tax assets and liabilities are computed annually for temporary
differences between the financial statement and tax bases of assets
and liabilities that will result in taxable or deductible amounts in
the future based on enacted tax laws and rates applicable to the
periods in which the differences are expected to affect taxable
income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. The income
tax provision or credit is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax
assets and liabilities.
F-19
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Note 2 - Summary of significant accounting policies (concluded):
Recent pronouncements affecting accounting standards: During 1995, the
Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of," and
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation." Statement No. 121 prescribes the method to
be used in the evaluation of long-lived and certain identifiable
intangible assets for impairment and the method to be used in
accounting for any such impairment. Statement No. 123 requires certain
disclosures related to the estimated fair value at the date of grant
of certain equity instruments issued to employees. The Company has not
determined the effects, if any, of these pronouncements which it will
be required to implement during 1996.
Note 3 - Mining, milling and other property and equipment:
Mining, milling and other property and equipment consisted of the
following at December 31, 1995:
Machinery and equipment $1,219,220
Mine and mill improvements 4,248,278
Furniture and fixtures 11,714
Automotive equipment 84,096
----------
5,563,308
Less accumulated depreciation and depletion 1,715,194
----------
Total $3,848,114
==========
Note 4 - Status of the Zeus Joint Venture Agreement:
The Zeus Joint Venture Agreement, as amended effective August 31,
1994, required (i) Gems to provide both technical and financial
support to the Joint Venture; (ii) the Company to contribute to the
Joint Venture the rights to the exclusive use of its lease interests
and other assets related to the mining properties in Clear Creek
County, Colorado; (iii) the potential transfer of the Company's assets
to the Joint Venture; (iv) the issuance to Gems of 6,000,000 common
shares of the Company, subject to the authorization by the
stockholders of the Company of a sufficient number of shares for such
issuance and certain other conditions; and (v) the allocation of 70%
and 30% of the Joint Venture's income or loss (as defined) to Gems and
the Company, respectively.
During the latter part of 1994, the management of Gems informed the
Board of Directors of the Company that prior to allocating substantial
additional resources to the mining facilities owned by the Company
(which the Joint Venture is responsible for developing) and the
commencement of commercial mining operations, it wished to (i) more
clearly define the relationships between the parties to the Zeus Joint
Venture Agreement, as amended effective August 31, 1993,
F-20
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Note 4 - Status of the Zeus Joint Venture Agreement (continued):
and (ii) conduct the Analysis Program to ascertain the scope and
extent of proven and probable reserves of mine ore containing
economically recoverable minerals not previously identified or
reported.
Effective in December 1994, the Company, Island and Gems entered into
a Binding Exchange Letter Agreement. Pursuant to such Binding Exchange
Letter Agreement, Gems agreed that, upon consummation of a final
agreement, it would transfer, in a tax free exchange, certain of its
assets for approximately 270,000,000 newly issued common shares of the
Company, together with certain demand and piggyback registration
rights and anti-dilution rights. The assets that were to be exchanged
by Gems included (i) Gems' 70% interest in the Joint Venture; (ii) the
exclusive rights to the use of Gems' proprietary processes,
technologies and techniques; and (iii) property rights acquired by
Gems pursuant to a November 1994 agreement in principle related to the
Hayden lease (see Note 6).
The Binding Exchange Letter Agreement further provided that if a
definitive Exchange Agreement was not consummated and approval of the
Company's stockholders was not obtained in a timely fashion, then the
Company would be obligated to issue 6,000,000 shares to Gems or, if
that were not possible, pay Gems at least $1,500,000 as a priority
payment.
The Company was unable to obtain the approval of its stockholders in a
timely fashion and Gems made certain claims for compensation under the
Exchange Agreement. As a result, in September 1995, the Company,
Island and Gems entered into an agreement (the "Settlement Agreement")
whereby the parties acknowledged that the Exchange Agreement was not
timely consummated due to the failure of the Company to obtain the
approval of its stockholders for an increase in its authorized capital
stock in a timely manner. In settlement of the parties' claims against
the Company for such failure to perform, the Company agreed to issue
6,000,000 shares of its common stock to Gems or, in the alternative,
to pay $1,500,000 as upset compensation to Gems (the "Upset Fee"). The
Company further agreed to use its best efforts to cause its
stockholders to approve an increase in its authorized capital stock
from 50,000,000 to 100,000,000 shares of common stock at an annual
meeting of stockholders in November 1995 to enable the Company to
issue the shares to Gems. In the event that the Company, after using
its best efforts, was unable to obtain the requisite approval of its
stockholders, Gems agreed to reduce the Upset Fee to $600,000.
F-21
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Note 4 - Status of the Zeus Joint Venture Agreement (continued):
The parties further agreed to convert $249,600 of the total amount
previously advanced to the Company by Gems to cover operating expenses
into 3,200,000 additional shares of its common stock, subject to the
approval of the Company's stockholders of the increase in its
authorized capital stock referred to above. Finally, as further
consideration for the settlement of their claims, Gems' interest in
the Joint Venture was increased to 82.5% and the Company's interest
was reduced to 17.5%. Gems was also given certain demand and piggyback
registration rights with respect to shares to be issued under the
Settlement Agreement.
On November 30, 1995, the stockholders of the Company approved the
proposed increase in the authorized capital stock of the Company and,
as required by the Settlement Agreement, in December 1995, the Company
issued to Gems 3,200,000 shares of its common stock to reduce
outstanding advances by $249,600 and 6,000,000 shares of its common
stock as additional consideration for the settlement of claims by
Gems.
Based on the quoted market value of $.15625 per share at the time of
issuance, the 3,200,000 shares issued to Gems in connection with the
conversion of the outstanding advances and the 6,000,000 shares issued
to Gems in connection with the settlement of claims had an aggregate
fair value of $499,200 and $936,000, respectively. Accordingly, the
accompanying financial statements, as restated, reflect charges to (i)
interest expense of $249,000, which represents the excess of market
value of the shares over the principal amount converted, and (ii) loss
on settlement of claims by joint venture partner of $936,000.
At the time the Company initially issued its financial statements for
the year ended December 31, 1995, management believed that the market
value of the shares issued to Gems in connection with the conversion
of the outstanding advances and the settlement of claims was
substantially in excess of their fair value 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%. Accordingly, the Company did not
record any interest expense in connection with the conversion of the
outstanding advances and it recorded a loss on settlement of claims by
joint venture partner of only $468,000. After discussions with the
Staff of the Securities and Exchange Commission (the "SEC") as to the
basis of the valuation of the shares issued to Gems, management has
determined that it would still not be cost effective to obtain
appraisals of the fair value of the shares and that, instead,
F-22
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Note 4 - Status of the Zeus Joint Venture Agreement (concluded):
the quoted market price at the time of issuance would be the most
reliable measure of fair value for these transactions. As a result,
the accompanying financial statements reflect increases in the
Company's net loss and additional paid-in capital of $717,600 from the
corresponding amounts in the financial statements the Company
initially issued and filed with the SEC.
Based on information developed through the Analysis Program and
previously available geological data and reports, the management of
the Joint Venture believes that the application of the Company's
proprietary technologies and processes should result in economically
viable commercial mining operations at the Franklin Mine.
Pursuant to the terms of the Zeus Joint Venture Agreement, Gems has
provided advances to the Company of $563,288 since the inception of
the agreement, including $331,980 and $156,581 in 1995 and 1994,
respectively. As a result of the noncash transaction described above
whereby the Company issued 3,200,000 shares of its common stock to
Gems in December 1995 to reduce outstanding advances by $249,600, the
balance of the loans payable to the Company's Joint Venture partner
totaled $313,688 at December 31, 1995. Such balance is noninterest
bearing and without a specific due date. In addition, Gems has
guaranteed the payment of the Company's outstanding convertible
promissory notes (see Note 5). The Joint Venture is also a development
stage company. The Company's investment in the Joint Venture as of
December 31, 1995, and the Joint Venture's results of operations for
the year then ended in relation to those of the Company, were not
material.
Note 5 - Convertible debt:
The Company's convertible debt at December 31, 1995 consisted of the
following:
12.25% convertible debentures (a) $145,000
15% convertible promissory notes (b) 200,000
--------
Total $345,000
========
(a) As of December 31, 1995, the Company was in default with respect
to the payment of the $145,000 principal balance of the
debentures and $13,321 of accrued interest payable for the
quarters subsequent to March 31, 1995. The Company sent notices
to its debentureholders in December 1995 asking for their consent
by February 15, 1996 to the further extension of the maturity
date to December 31, 1996. It was also contemplated that
conversion rights would also be extended at the previous rate of
$.50 per share. The Company also agreed that it would make all
interest payments due to such holders through December 31, 1995,
prepay interest which will become due at the end of the first
F-23
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Note 5 - Convertible debt (concluded):
quarter of 1996 and set up a fund with the Trustee to secure the
timely payment of the principal balance of the debentures on
December 31, 1996. Only one holder of a $1,000 debenture rejected
the Company's request.
While it is the intention of management and the Company to comply
with the terms of the agreements with the debentureholders, the
Company has been unable to comply as a result of the liquidity
and cash flow problems described in Note 1. As a result of its
default and its continued failure to comply with the December
1995 agreements, the Company may be subject to legal proceedings
by the Transfer Agent/Trustee under the Indenture Agreement or
from debentureholders seeking immediate repayment of principal
plus interest and penalties. Management cannot assure that there
will be funds available for the required payments or what the
effects of any actions brought by or on behalf of the
debentureholders will be.
(b) In December 1995, the Company commenced an offering exempt from
registration pursuant to Rule 505 of Regulation D of the 15%
secured convertible promissory notes in the aggregate principal
amount of $1,500,000. The Company terminated the offering on
February 5, 1996 after selling convertible notes in the aggregate
principal amount of $400,000, of which $200,000 was outstanding
at December 31, 1995 as shown above. Each convertible note will
mature 18 months from the date of its issuance. The notes will be
convertible into shares of the Company's common stock after April
1, 1996 at a conversion price based on 75% of the average market
price of the Company's common stock (as defined) for a specified
period prior to conversion. Noteholders have unlimited piggyback
registration rights and, commencing one year after issuance and
subject to certain conditions, will have demand registration
rights with respect to the common stock underlying the
convertible notes. The convertible notes are guaranteed by Gems
and secured by Gems' profit interest in the Joint Venture.
Note 6 - Commitments and contingencies:
Lease commitments:
The Joint Venture was primarily formed to develop the mining
properties pursuant to the Company's rights under the Hayden/Kennec
Leases, and the future success of its operations is dependent on its
ability to utilize and extend those lease rights and/or to otherwise
acquire the rights to the use of such properties and the extraction of
the related resources.
F-24
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Note 6 - Commitments and contingencies (continued):
Lease commitments (continued):
The Company entered into the Hayden/Kennec Leases with the fee owners
of 28 patented mining claims in Clear Creek County on November 12,
1976. Under the provisions of these leases, Franklin has the exclusive
right to explore for, develop and mine and to extract any minerals
found in the mines, lodes, veins and dumps located thereon. In
addition, Franklin has certain water and mill operating rights.
The initial terms of the Hayden/Kennec Leases were for 20 years at
aggregate monthly rentals equal to the greater of $2,000 or 5% of
realized proceeds from the sale of minerals derived from the leased
property. In addition, the Company is required to pay all related
property taxes and insurance. Rentals amounted to $24,000 in 1995 and
were paid by the Joint Venture.
The Hayden/Kennec Leases grant the Company the right to purchase the
mineral rights to the leased property upon the payment of $1,250,000
less any previous rental payments.
In the event that the Hayden/Kennec Leases are terminated, any
leasehold or other improvements on the mining properties made by Gems,
the Joint Venture or the Company become the property of the lessors
without compensation to Gems, the Joint Venture or the Company. The
Company has the right to assignment under the lease.
As of December 31, 1995, the Company was delinquent in paying
approximately $44,000 of the required taxes due (including interest).
Clear Creek County has filed liens on those taxes in arrears. Certain
of these liens were sold under auction during October 1994 and the
Company has three years from the date of sale to redeem them.
To further secure the ability of the Joint Venture partners to exploit
the Clear Creek County mining properties, Gems entered into an
agreement on December 21, 1995 to purchase all of the right title and
interest of Audry Hayden in and to all mining claims and properties
located on the property which is subject to the Hayden/Kennec Lease as
well as Hayden's interest under the Hayden Lease with the Company (the
"Hayden Interests") for a purchase price of $75,000. In addition, Gems
agreed to pay Hayden $5,000 representing payment in full of back
payments due and owing to Hayden by the Company on the Hayden Lease
and further agreed to pay to Hayden $1,000 per month for a period of
12 months commencing on the date of the Purchase Agreement. On the
date upon which the final $1,000 installment is due to Hayden, Gems
will pay the remaining principal balance of the purchase price which
will consist of $75,000 less the initial payment of $5,000 advanced
for back payments on the Hayden Lease. The management of Gems
F-25
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Note 6 - Commitments and contingencies (continued):
Lease commitments (concluded):
has informed the Company that it believes that as a result of the
acquisition of the Hayden Interests, the interest in the surface
rights held by the Hayden Lease and the provisions of the Kennec Lease
that permit the exploration and development of such properties by any
method of mining, the Joint Venture will have adequate access to the
minerals during the term of the Kennec Lease and on a continuing basis
even if the Kennec Lease should expire and not be renewed by the
Company.
Legal proceedings:
The Company is a party to various legal proceedings in the normal
course of business. It is the opinion of management that these actions
are routine in nature and their disposition will not have any material
adverse effects on the Company's financial position or results of
operations.
Environmental matters:
During November 1993, the Company was notified by the State of
Colorado Division of Minerals and Geology (the "DMG") that the Joint
Venture had failed to file a plan in the form of a Technical Revision
to address erosion, sedimentation and run-off matters at the Franklin
Mine in connection with continuation of the Company's state mining
permit. As a result, the Company had to take certain remedial actions,
increase its reclamation bond from $29,000 to $45,000 and pay a $5,000
fine during 1994.
In August 1994, the Company received an informal notice from the DMG
of an additional violation at the Franklin Mine related to water
run-off matters. The Company attempted to rectify the violations cited
by the DMG but was unable to do so in a timely manner because such
corrections required performance of work outside the boundaries of its
then current permit. The Company agreed that it would refrain from any
mining or milling operations at the Franklin Mine until the DMG (i)
amended the Company's permit to enable it to perform the required
technical and remediation work and (ii) determined that all required
work was completed.
In February 1996, the DMG permitted the Company to commence crushing
activity at the Franklin Mine pursuant to another prospecting permit.
In March 1996, the Company was notified that it would be required to
increase its land reclamation bond by an amount that would be
determined subsequently. In an effort to comply, the Company increased
its reclamation bond from $45,000 to $93,000. On or about March 28,
1996, the Company received a temporary cease and desist order
prohibiting it from conducting mining and milling operations at the
Franklin Mine until such time as all of the violations cited by the
DMG
F-26
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Note 6 - Commitments and contingencies (concluded):
Environmental matters (concluded):
are corrected. However, management believes that the cease and desist
order will have minimal effects on the prospecting and testing
activities that are in process at the Franklin Mill since they are
being conducted pursuant to a permit that is specifically excluded
from such order. In addition, the Mined Land Reclamation Bureau of
Colorado determined that the Company's reclamation bond should be
further increased to approximately $252,000 by April 5, 1996.
The Company had not posted the required bond as of April 10, 1996. In
addition, management cannot determine what the ultimate costs will be
of rectifying the violations cited by the DMG and complying with
environmental regulations. In addition, management cannot assure that
the Company will be able to obtain the funds necessary for the
required increase in the reclamation bond and the additional
expenditures for the required corrective actions, and it cannot
determine what the effects, if any, will be on the Company's financial
statements if such financing is not obtained and the corrective
actions are not taken.
Note 7 - Income taxes:
As of December 31, 1995, the Company had net operating loss
carryforwards of approximately $9,512,000 available to reduce future
Federal taxable income which, if not used, will expire at various
dates through December 31, 2010. Due to changes in the ownership of
the Company, the utilization of these loss carryforwards may be
subject to substantial annual limitations.
The Company has offset the deferred tax asset of $3,234,000
attributable to the potential benefits from such net operating loss
carryforwards as of December 31, 1995 by an equivalent valuation
allowance due to the uncertainties related to the extent and timing of
its future taxable income. There were no other material temporary
differences as of that date.
The expected Federal income tax benefit, computed based on the
Company's pre-tax losses in 1995 and 1994 and the statutory Federal
income tax rate, is reconciled to the actual tax benefit reflected in
the accompanying financial statements as follows:
1995 1994
-------- --------
Expected tax benefit at statutory
rates $558,000 $130,000
Decrease resulting from valuation
allowance for benefits from net
operating loss carryforwards (558,000) (130,000)
-------- --------
Totals $ -- $ --
======== ========
F-27
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Note 8 - Stockholders' equity:
Issuance of common stock to convert debt and other equity interests:
In May 1992, the Company issued a series of promissory notes to
related parties and others in the aggregate principal amount of
$504,000 that bore interest at 3% above a specified prime rate. In
addition, the holders of notes in the principal amount of $450,000
were entitled, under certain conditions, to a 1% interest in the
profits (as defined) of the Company for each $50,000 of principal
amount held and, accordingly, held total profit participation
interests of 9%. In July 1993, Gems was assigned notes in the
principal amount of $200,000 and the related 4% profit participation
interests.
During 1995, the Company entered into agreements for the conversion of
all of the notes, the accrued interest thereon and the profit
participation interests whereby (i) the entire principal balance and
the accrued interest payable at the respective dates of conversion
which totaled $677,025 was converted at $.078 per share (the estimated
fair market value of the unregistered shares) into a total of
8,679,797 shares of common stock and (ii) all of the profit
participation interests were converted at the rate of 300,000 shares
for each 1% profit participation interest held into a total of
2,700,000 shares of common stock. These conversions were noncash
transactions and, accordingly, they are not reflected in the
accompanying 1995 statement of cash flows.
Common stock reserved for issuance: During 1995, the Company issued
warrants for the purchase of 500,000 shares of common stock at an
exercise price of $.01 per share as part of the consideration for
services provided to the Company. In the opinion of management, the
fair value of the warrants was not material and the Company did not
recognize any expense related to such issuance.
At December 31, 1995, shares of common stock were reserved for
issuance upon exercise of outstanding debentures, notes and warrants
as follows:
Convertible debentures 290,000
Convertible promissory notes (a) 1,066,667
Warrants 500,000
---------
Total 1,856,667
=========
(a) Computed based on the fair market value of the Company's common
stock as of December 31, 1995 (see Note 5).
F-28
<PAGE>
FRANKLIN CONSOLIDATED MINING CO., INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
Note 9 - Fair value of financial instruments:
The Company's material financial instruments at December 31, 1995 for
which disclosures of estimated fair values are required by certain
accounting standards consisted of cash, convertible debentures,
convertible notes and loans payable to the Joint Venture partner. The
fair value of cash is equal to its carrying value because of the
liquidity and short-term maturity of such a financial instrument. The
fair value of the fixed rate convertible notes is equal to the
carrying value because such obligations were issued just prior to
December 31, 1995 at a market interest rate. Because of the
relationship of the Company and its Joint Venture partner, there is no
practical method that can be used to determine the fair value of the
loans payable by the Company. Because of the Company's defaults with
respect to the payment of the convertible debentures and the
uncertainties related to the ability of the Company to obtain the
funds for their repayment, there is no practical method that can be
used to determine the fair value of the loans payable by the Company
to the holders of the debentures.
* * *
F-29
<PAGE>
Item 6. Management's Discussion and Analysis or Plan of Operation
The Company is engaged in the business of seeking to develop a commercial mining
operation at leased properties located in Idaho Springs, Colorado. The Company
is in the development stage and has generated nominal revenues since inception.
Significant operating revenues are not expected to be generated unless and until
commercial mining and milling operations recommence at the Company's mining
property.
1995 Results compared with 1994
During the year ended December 31, 1995, operations at the Company's property
consisted of a core drilling analysis program which further substantiated proven
and probable reserves, remedial work and technical revisions addressing erosion,
sedimentation and run-off matters as well as other matters which the DMG
required to be performed in connection with the Company's permits. Expenditures
with respect to the core drilling analysis program were approximately $ 234,430
which was advanced on behalf of the Company by Gems and subsequently reimbursed
by the Company out of the proceeds of the Company's Note Offering. All other
costs and expenditures associated with the remedial and technical revisions were
advanced by Gems in accordance with the joint venture agreement.
The Company had revenues of $1,060 during 1995 and less than $1,000 in 1994. The
continued failure of the Company to commence commercial operations at the
Franklin Mine and Franklin Mill contributed to the Company's inability to
generate increased revenues.
It remains the Company's policy to recognize income from sales of mineral
concentrates only upon receipt of final settlement funds from the smelter. The
Company did not ship any mineral concentrates to the smelter in 1995; however,
the Company has begun the shipping of mineral concentrates to ASARCO
Incorporated in connection with the transactions involving the LLC in the early
part of 1996. Management is hopeful that the Company will be successful in
clearing its permitting issues in fiscal year 1996 such to enable the Company to
increase its production at the Franklin Mill as contemplated by the
Process/Profit Interest Contract allowing for the shipping of mineral
concentrates to smelters which, in turn, will result in an increase in revenue
to the Company either directly or indirectly through its 17.5% interest in the
Joint Venture.
Expenditures at the Franklin Mine and Franklin Mill were borne by Gems in 1995
as they were in 1994. General and administrative expenses were approximately
$227,287 in 1995 as compared with $151,000 in 1994, such increase being a result
of an increase in professional fees. Depreciation of equipment was approximately
$123,000 during 1995 and 1994. Mine and Mill improvements were not amortized in
1995 and 1994. Interest expense was approximately $342,000 in 1995 compared to
$68,000 in 1994. Substantially, as a result of additional interest incurred
related to common stock issued in 1995.
The Company had a net loss of approximately $1,642,000 for the year ended
December 31, 1995 compared with a net loss of $ 382,000 for 1994. The increased
loss was substantially due to a fee of $936,000 which was a non-
2
<PAGE>
cash charge paid through the issuance of stock to the Company's joint venture
partner, Gems. This fee, which was paid in the form of 6,000,000 shares of
common stock, was paid pursuant to the terms of a Binding Exchange Letter
Agreement, between the partners, which was not timely consummated.
The Company's ability to continue operations through 1996 is predicated on the
terms of the joint venture agreement with Gems pursuant to which Gems has agreed
to provide technical and financial support to recommence mining and milling
operations at the Company's properties. Additionally, the Company is and will
remain dependent upon Gems for all of its funding needs until such time as the
Franklin Mine and Franklin Mill shall become operational. Once the Company's
properties begin commercial operations, the Company will realize 17.5% of all
net profits generated from the operations thereof. Additionally, the Company
will receive 17.5% of all income to the Joint Venture derived from the
Process/Profit Interest Contract. Management is hopeful that such monies will be
sufficient to fund its future operations; however, there can be no assurance
that the Company will realize income from commercial operations of its
properties in 1996 or that the limited income which it will receive from the
Process/Profit Interest Contract will be sufficient to fund its operations and
other obligations independent from Gems. Therefore, until such time as the
Company's income will be sufficient to operate independent from Gems, it will
remain dependent on its joint venture partner to finance its operations.
Liquidity and Capital Resources
Since inception, the Company has financed its operations principally through
equity and debt financing and its relationships with its joint venture partners.
The Company has derived no income from mining operations. At December 31, 1995,
the Company's liquidity and capital resources position had been increased from
$1,000 in cash or cash equivalents at December 31, 1994 to $118,000 at December
31, 1995. Continued funding from Gems in 1995, including loans totaling
$332,100, enabled the Company to repay certain debts, to purchase and install
equipment and to cover operating expenses, including general administrative and
research and development expenses. Additionally, the Company was able to reduce
the balance owed to Gems by $249,000 through the issuance of Common Stock. Until
it can generate significant operating revenues, the Company is dependent on Gems
for the bulk of its operating capital. The Company's ability to continue active
mining operations is currently predicated on the continued infusions of capital
from Gems. Excluding the mining and milling expenses borne by Gems in accordance
with the Company's joint venture agreement, the Company anticipates its cash
requirements for general and administrative expenses for 1996, including legal
and accounting fees, to be approximately $350,000, which amount does not include
the payment of (a) $145,000 in principal plus accrued and unpaid interest on the
Company's Debentures currently in default as of December 31, 1995 and (b)
approximately $ 313,688 in advances payable to Gems as of December 31, 1995.
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 debt 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") pursuant to
3
<PAGE>
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 4,500,000 shares of common stock
at each lenders option, including, all profit interests which were convertible
into 300,000 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 300,000 shares per percentage point or 1,200,000 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 quote d 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
Dec ember 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. In December 1995, the Company commenced an offering
pursuant to Rule 505 of Regulation D of $1,500,000 principal amount of its 15%
Secured Notes (the "Notes") Convertible into Shares of Common Stock of the
Company. Such Notes have a maturity date of eighteen months from the date of
each Note so issued (the "Maturity Date"). Interest on the Notes accrues at a
rate of fifteen percent (15%) per annum, compounded annually on the outstanding
unpaid principal of each Note, and is payable quarterly, with the first payment
due and payable on the last day of March, 1996, and on the last day of June,
September and December thereafter, with any accrued but unpaid interest on be
paid on a quarterly basis or in full together with the final principal payment
on the Note. There are no scheduled payments of principal until the earlier of
either the Maturity Date or the date on which all unpaid principal of and
interest on the Note becomes immediately due and payable to the holder thereof
in the e vent of a default under the terms of the Note. The Company may, at any
time, prepay the Notes in whole or in part without penalty or premium. In
addition, purchasers of the Notes have unlimited piggyback rights and, on or
after the one year anniversary of the offering, one demand registration right.
The offering was made to accredited investors only and such purchasers may not
convert the Notes into shares of Common Stock until 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. In February, 1996, the Company commenced an
offering pursuant to Rule 505 of Regulation D of its Common Stock to accredited
and unaccredited investors in an effort to raise the remaining amount of funds
which it anticipated it would be able to realize through the offering of the
Notes. Subscribers of the offering purchased the Common Stock at a purchase
price 15% below the market price of the stock as quoted on NASDAQ at the close
of business the prior date. Although the offering is presently continuing, the
Company has raised approximately $200,000 as of March 29, 1996.
4
<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.
(FORMALLY FRANKLIN CONSOLIDATED MINING CO., INC.
March 29, 1999 By: /s/ Robert Walligunda
--------------------------
President
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Robert Waligunda Director/Secretary March 29, 1999
Robert Waligunda
/s/ Richard Brannon Vice President-West Coast March 29, 1999
- -------------------------- Operations
Richard Brannon
/s/ George Otten Vice President March 29, 1999
- --------------------------
George Otten
/s/ William C. Martucci Director March 29, 1999
- --------------------------
William C. Martucci
/s/ Ronald Ginsberg Director March 29, 1999
- --------------------------
Ronald Ginsberg
/s/ Robert W. Singer Director March 29, 1999
- --------------------------
Robert W. Singer
