U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSBA
Quarterly Report Under Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the Quarter Ended June 30, 2000 Commission File No. 0-9416
WCM CAPITAL, INC.
(FORMERLY FRANKLIN CONSOLIDATED MINING CO., INC.)
(Exact name of registrant as specified in its charter)
Delaware #13-2879202
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
76 Beaver Street, Suite 500, New York, New York 10005
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area code (212) 344-2828
The Number of Shares Outstanding of Common Stock
$.01 Par Value, at June 30, 2000 1,318,767
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports,) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
<PAGE>
WCM CAPITAL, INC.
(AN EXPLORATION STAGE COMPANY)
CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
June 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ -- $ --
------------ ------------
TOTAL CURRENT ASSETS -- --
Mining, milling and other property and equipment,
net of accumulated depreciation and depletion of
$2,193,156 and $2,166,261 4,590,939 4,617,834
Mining reclamation bonds 138,386 137,016
------------ ------------
$ 4,729,325 $ 4,754,850
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 523,988 $ 689,049
Payroll and other taxes payable 29,960 29,960
Convertible debentures 145,000 145,000
Notes payable - related party and others 218,965 218,965
Note payable - related party 1,640,428 1,470,295
------------ ------------
TOTAL CURRENT LIABILITIES 2,558,341 2,553,269
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, par value $.01 per share;
40,000,000 shares authorized; 1,318,767 shares
issued and outstanding 13,188 13,188
Additional paid-in capital 18,652,381 18,390,360
Deficit accumulated during the exploration stage (16,494,585) (16,201,967)
------------ ------------
2,170,984 2,201,581
------------ ------------
$ 4,729,325 $ 4,754,850
============ ============
</TABLE>
See notes to condensed financial statements.
2
<PAGE>
WCM CAPITAL, INC.
(AN EXPLORATION STAGE COMPANY)
STATEMENTS OF OPERATIONS
SIX AND THREE MONTHS ENDED JUNE 30, 2000 AND 1999
AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION) TO JUNE 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Six Months Three Months
Ended June 30 Ended June 30
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Sales $ -- $ -- $ -- $ --
Interest income 1,370 1,071 685 672
Other income -- -- -- --
------------ ------------ ------------ ------------
1,370 1,071 685 672
------------ ------------ ------------ ------------
EXPENSES:
Mine expenses and environmental remediation costs 36,886 25,593 36,406 10,916
Write-down of mining and milling and other property
and equipment -- -- -- --
Depreciation and depletion 26,895 13,354 13,448 6,677
General and administrative expenses 147,853 69,424 21,085 43,782
Interest expense 82,355 70,681 42,218 36,082
Amortization of debt issuance expense -- -- -- --
Equity in net loss and settlement of claims of Joint Venture -- -- -- --
Other -- -- -- --
------------ ------------ ------------ ------------
293,989 179,052 113,157 97,457
------------ ------------ ------------ ------------
NET LOSS $ (292,619) $ (177,981) $ (112,472) $ (96,785)
============ ============ ============ ============
BASIC LOSS PER COMMON SHARE $ (.22) $ (.13) $ (.09) $ (.07)
============ ============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 1,318,767 1,318,767 1,318,767 1,318,767
============ ============ ============ ============
<CAPTION>
Cumulative
from
Inception
------------
<S> <C>
REVENUES:
Sales $ 876,082
Interest income 552,479
Other income 79,397
------------
1,507,958
------------
EXPENSES:
Mine expenses and environmental remediation costs 3,657,996
Write-down of mining and milling and other property
and equipment 1,795,000
Depreciation and depletion 2,388,505
General and administrative expenses 6,630,058
Interest expense 1,368,787
Amortization of debt issuance expense 683,047
Equity in net loss and settlement of claims of Joint Venture 1,059,971
Other 419,179
------------
18,002,543
------------
NET LOSS $(16,494,585)
============
BASIC LOSS PER COMMON SHARE
WEIGHTED AVERAGE SHARES OUTSTANDING
</TABLE>
See notes to condensed financial statements.
<PAGE>
WCM CAPITAL, INC.
(AN EXPLORATION STAGE COMPANY)
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION)
TO JUNE 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
from
2000 1999 Inception
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (292,619) $ (177,980) $(16,494,586)
Adjustments to reconcile net loss to net cash used in
Operating activities:
Depreciation and depletion 26,895 13,354 2,388,505
Provision for bad debt -- -- 350,000
Write-down of mining and milling and other
Property and equipment -- -- 1,530,000
Amortization of debt issuance expense -- -- 683,047
Loss on Sale of Equipment -- -- 265,000
Value of common stock issued for:
Services and interest -- -- 1,934,894
Settlement of litigation -- -- 100,000
Settlement of claims by joint venture partner -- -- 936,000
Compensation resulting from stock options granted -- -- 311,900
Value of stock options granted for services -- -- 112,500
Equity in net loss of joint venture -- -- 123,971
Other -- -- (7,123)
Changes in operating assets and liabilities:
Interest accrued on mining reclamation bonds (1,370) (1,071) (13,386)
Accounts payable and accrued expenses 96,960 16,527 1,048,225
------------ ------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (170,134) (149,170) (6,731,053)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases and additions to mining, milling and other
Property and equipment -- -- (5,120,354)
Purchases of mining reclamation bonds, net -- -- (125,000)
Deferred mine development costs and other expenses -- -- (255,319)
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES -- -- (5,500,673)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuances of common stock -- -- 8,758,257
Issuance of underwriter's stock warrants -- -- 100
Commissions on sales of common stock -- -- (381,860)
Purchases of treasury stock -- -- (12,500)
Payments of deferred underwriting costs -- -- (63,814)
Proceeds from exercise of stock options -- -- 306,300
Issuance of convertible debentures and notes -- -- 1,505,000
Proceeds of advances from joint venture partner -- -- 526,288
Advances to joint venture partner -- -- (181,017)
Payments of debt issuance expenses -- -- (164,233)
Proceeds of other notes and loans payable 170,134 149,170 2,051,912
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 170,134 149,170 12,231,726
------------ ------------ ------------
</TABLE>
(Continued)
4
<PAGE>
WCM CAPITAL, INC.
(AN EXPLORATION STAGE COMPANY)
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION)
TO JUNE 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
from
2000 1999 Inception
------------- ------------- -----------
<S> <C> <C> <C>
DECREASE IN CASH $ -- $ -- $ --
CASH - beginning of period -- -- --
------------- ------------- -----------
CASH - end of period $ -- $ -- $ --
============= ============= ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA:
Interest paid $ -- $ -- $ 299,868
============= ============= ===========
</TABLE>
NONCASH INVESTING AND FINANCING ACTIVITIES:
During June 2000, U.S. Mining Inc. agreed to waive and contribute as additional
paid in capital all accrued interest on notes payable to U.S. Mining Inc. During
the six months ended June 30, 2000 accrued interest has been reduced by $262,021
and additional paid in capital has been credited by $262,021.
See notes to condensed financial statements.
5
<PAGE>
WCM CAPITAL, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2000
NOTE 1 - UNAUDITED INTERIM FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited condensed
financial statements reflect all adjustments, consisting of normal
recurring accruals, necessary to present fairly the financial position of
WCM CAPITAL, INC. (the "Company") as of June 30, 2000, and its results of
operations and cash flows for the six months and three months ended June
30, 2000 and 1999. Information included in the condensed balance sheet as
of December 31, 1999 has been derived from the audited balance sheet in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1999
(the "10-KSB") filed with the Securities and Exchange Commission. Certain
terms used herein are defined in the 10-KSB. Accordingly, these unaudited
condensed financial statements should be read in conjunction with the
financial statements, notes to financial statements and the other
information in the 10-KSB.
The results of operations for the six and three months ended June 30, 2000
are not necessarily indicative of the results of operations for the full
year ending December 31, 2000.
NOTE 2 - BASIS OF PRESENTATION
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. However, the Company has had
recurring losses and cash flow deficiencies since inception. As at June 30,
2000, the Company has an accumulated deficit of $16,494,585, current
liabilities of $2,820,362, and a working capital deficiency of $2,820,362.
Also, the Company was in default on the payment of the principal balance
and accrued interest on certain notes and debentures and certain accounts
payable are past due. In addition to the payment of its current
liabilities, management estimates that the Company will incur general,
administrative, and other costs and expenditures, exclusive of any costs
and expenditures related to any mining and milling operations, at the rate
of approximately $20,000 per month plus interest during 2000. Such matters
raise substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments that may
result from the outcome of the above uncertainty.
U.S. Mining Inc. and its sole shareholder, William C. Martucci, have
pledged to provide financing to the Company on an as needed basis until on
or about December 31, 2000. The funds received from USM will cover the
general, administrative and other costs approximated at $20,000 per month
plus interest. Additional funds will be needed to ready the Franklin Mine
and Mill properties for the commencement of extraction and milling and to
support the extraction and milling processes once underway as well as to
upgrade the processing facilities to allow for an increase in ore
processing capacity.
There can be no assurance that the Company will have adequate funds
available to repay the funds advanced by USM. In the event that the Company
defaults on its obligations, USM may foreclose on the assets secured by the
USM note. Such foreclosure actions by USM would have a material adverse
effect on the future operations of the Company and the Company's ability to
explore the Franklin Mines.
6
<PAGE>
WCM CAPITAL, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2000
NOTE 2 - BASIS OF PRESENTATION continued:
Substantially all of the $4,590,939 of mineral properties and equipment
included in the accompanying balance sheet as of June 30, 2000, 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 3 - NOTES PAYABLE RELATED PARTY AND OTHERS
Notes payable related party and others consist of the following at June 30,
2000:
12% unsecured demand note due to an affiliate of the
former president of the Company $ 71,965
Secured promissory note (a) 60,000
Unsecured promissory notes (b) 87,000
--------
$218,965
========
(a) The outstanding principal balance of the note became payable on July
18, 1996 and the Company is in default. The note is guaranteed by
certain officers of Gems and is collateralized through a subordinated
security interest in the Company's mining reclamation bond. Interest
on the note is payable based on the rate of interest applicable to the
mining reclamation bond.
(b) This principal amount represents four unsecured promissory notes
comprised of one $36,000 note and three $17,000 notes payable. The
Company assumed these obligations on November 25, 1997, as part of the
acquisition from USM of the remaining interest in the Joint Venture.
These notes were in default when assumed by the Company, and remain in
default as of June 30, 2000. Interest is being accrued at rates
between 8% and 17% per annum.
Accrued interest on the above notes at June 30, 2000 aggregated
approximately $76,000.
NOTE 4 - CONVERTIBLE DEBENTURES
The Company's convertible debt at June 30, 2000 consist of:
12.25% convertible debenture originally due 12/31/94 $145,000
As of June 30, 2000, the Company was in default with respect to the payment
of the $145,000 principal balance of the debenture and accrued interest of
approximately $93,000. As a result of its default, the Company is subject
to and may be subject to further litigation by the Transfer Agent/Trustee
under the Indenture Agreement or from debenture holders seeking immediate
repayment of principal plus interest and other costs. Management cannot
assure that there will be funds available for the required payments or what
the effects will be of any actions brought by or on behalf of the debenture
holders.
7
<PAGE>
WCM CAPITAL, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2000
NOTE 5 - NOTE PAYABLE - RELATED PARTY
The Company had outstanding a 8% promissory note balance of $1,640,428, at
June 30, 2000, which represents monies advanced to the Company by U.S.
Mining, Inc. ("USM") and obligations assumed in connection with the
contributions of Joint Venture interests in 1997. The note was payable on
May 4, 1998, and is secured by all the Company's mining claims and mining
properties, as well as its interests in the Hayden/Kennec Leases. The note
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. During June 2000, USM forgave all accrued interest on the note
payable and accordingly $262,021 was credited to additional paid in
capital. USM has agreed to waive all interest through December 2000.
NOTE 6 - 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.
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
8
<PAGE>
WCM CAPITAL, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2000
NOTE 6 - COMMITMENTS AND CONTINGENCIES continued:
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
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.
(b) Environmental Matters
During 1999, inspections of the Franklin Mining properties revealed that
certain drainage problems and substandard linings at the tailings disposal
areas created potential hazards and that protection measures are required.
The Company received a letter dated March 9, 2000 from the Colorado
Division of Minerals and Geology (the "DMG") which sets forth the measures
which must be taken by the Company to bring the site into compliance with
groundwater regulations and to stabilize the tailings pond and site. The
Company has been given until September 4, 2000 to submit its final
groundwater sampling and to make some minor equipment adjustments at which
time the Company expects that its Temporary Cessation order will be granted
by DMG. In the event a Temporary Cessation is granted, no further
reclamation work or mining work would be required for the duration of the
Temporary Cessation, beyond basic maintenance and reclamation required to
keep the site from further deterioration
(c) Litigation
In September 1997, certain of the Company's 12.25% Convertible Debenture
holders instituted an action against the Company for payment of
approximately $42,500 principal amount of its 12.25% Convertible Debentures
plus accrued and unpaid interest totaling approximately $13,000 and other
costs and expenses related thereto. The Company has answered the aforesaid
complaint. Default was entered against the Company in the amount of $42,500
plus interest, costs and disbursements. The Company and USM have been
negotiating with the debenture holders but to this point no settlement
agreement has been reached. The continued default of the Company could
result in the Company being subject to additional legal proceedings. In
addition, there is no assurance that funds will be available to cure the
default or reach an acceptable settlement.
9
<PAGE>
WCM CAPITAL, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2000
NOTE 6 - COMMITMENTS AND CONTINGENCIES (Continued)
(d) NASDAQ Notification
During 1998 and 1999, the Company received notification letters from NASDAQ
informing them that the Company's common stock was not in compliance with
the NASDAQ small-cap market price requirement of $1.00, which became
effective on February 23, 1998.
In order to mitigate the minimum bid price requirement the Company
effectuated reverse stock splits during 1998 and 1999. After each reverse
split the Company's stock price remained above the $1.00 minimum bid price
requirement for the necessary ten-day period.
While the Company is currently in compliance with the minimum bid price
requirement, there can be no assurance in the future that it will be able
to maintain such compliance.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Liquidity and Capital Resources
The Company had no active mining or milling operations during the first and
second quarters of 2000; however, the Company continued its efforts to bring the
site into compliance with groundwater regulations and to stabilize the tailings
ponds and site generally.
During the first quarter of 2000, the Company filed a notice with the Division
of Minerals and Geology (the "DMG") requesting that its permit be placed into
Temporary Cessation. A Temporary Cessation is a limited period of
non-production, which results when an operator plans to temporarily cease
production for at least 180 days upon filing of a notice of such intent with the
DMG. As a condition to granting the Company's request, the DMG required that the
Company address certain issues with respect to groundwater and tailings disposal
ponds. Thus, the Company's efforts have been focused on addressing these issues.
After a recent inspection by the DMG, the Company was notified that it has until
September 4, 2000 to submit its final groundwater sampling and to make some
minor adjustments to its equipment at the mine. The Company expects that the DMG
will grant its application for Temporary Cessation once these final items have
been addressed.
While the Company intends to place its permit into Temporary Cessation, the
Company remains hopeful that economically viable commercial mining operations at
the Idaho Springs mining facilities can be conducted in the future. However,
given the current economic climate, it is unlikely that the Company will
commence operations in the year 2000.
10
<PAGE>
Management estimates that the Company will incur general, administrative and
other costs and expenditures, exclusive of any costs and expenditures related to
any mining and milling operations and interest, at the rate of approximately
$20,000 per month for the remainder of 2000.
U.S. Mining Co. and its sole shareholder, William C. Martucci, has verbally
pledged to provide financing to the Company on an as needed basis until on or
about December 31, 2000. The Company cannot assure, however, that USM will
fulfill its commitment to fund the Company's operations through year-end 2000.
The funds received from USM and its affiliates will cover the general,
administrative and other costs approximated at $20,000 per month plus interest.
Additional monies will be needed to ready the Franklin Mine and Milling
properties for the commencement of extraction and milling and to support the
extraction and milling processes once underway as well as to upgrade the
processing facilities to allow for an increase in ore processing capacity.
There can be no assurance that the Company will have adequate funds available to
repay the funds advanced by USM or that USM will fulfill its obligations to fund
the Company through December 31, 2000. In the event that the Company defaults on
its obligations, USM may foreclose on the assets secured by the USM note. Such
foreclosure actions by USM would have a material adverse effect on the future
operations of the Company and the Company's ability to explore the Franklin
Mines.
Results of Operations:
Six and Three months ended June 30, 2000 Compared to Six and Three Months Ended
June 30,1999
Company had a net loss of $292,619 and $112,472 for the six and three months
ended June 30, 2000 respectively, as compared to a net loss of $177,981 and
$96,875 during the same periods in 1999.
Environmental remediation costs and mine expenses were $36,886 and $36,406 for
the six and three months ended June 30, 2000 respectively, compared to $25,593
and $10,916 during the same periods in 1999. This increase was due to the
payment of County taxes during 2000.
General and administrative expenses were $147,853 and $21,085 for the six and
three months ended June 30, 2000 respectively, compared with $69,424 and $43,782
during the same periods in 1999. This increase resulted principally from an
increase in legal, professional and other costs associated with the filing of a
proxy statement (approximately $61,000) and the reversal of previously accrued
costs during the quarter ended March 31, 1999 (approximately $38,000).
Interest expense was $82,355 and $42,218 during the six and three months ended
June 30, 2000 respectively, as compared to $70,681 and $36,082 during the same
periods in 1999. This increase was due to interest incurred on the USM note.
Six and Three Months ended June 30, 1999 Compared to Six and Three Months Ended
June 39, 1998
The Company had a net loss of $177,981 and $96,785 for the six and three months
ended June 30, 1999 respectively, as compared to a net loss of $634,252 and
$463,802 during the same periods in 1998. The loss in 1998 was higher due to a
$265,000 loss on sale of the Gold Hill Mill Properties in 1998.
Environmental remediation costs and mine expenses were $25,593 and $10,916 for
the six and three months ended June 30, 1999, respectively, compared to $38,491
and $26,145 during the same periods in 1998. This decrease was due to lower
levels of activities in the 1999 periods.
11
<PAGE>
General and administrative expenses were $69,424 and $43,782 for the six and
three months ended June 30, 1999 respectively, compared with $215,220 and
$113,726 during the same periods in 1998. This decrease was due to a substantial
decrease in legal and professional fees, as well as settlements with venders
resulting in a reduction of accounts payable of approximately $38,000.
Interest expense was $70,681 and $36,082 during the six and three months ended
June 30, 1999 respectively, as compared to $57,397 and $30,302 during the same
periods in 1998. This increase was due to interest incurred on the USM note.
PART II
Item 1. Legal Proceedings
Convertible Debentures
On June 1, 1994, the Company advised the Transfer Agent/Trustee that the Company
was not in compliance with certain of the terms of the indenture (the
"Indenture") relating to the Company's 12 1/4% Convertible Debentures (the
"Debentures") in that it had not maintained current filings with the Securities
and Exchange Commission (the "Commission") as required. Accordingly, the
Transfer Agent/Trustee was instructed not to convert any of the Debentures into
Common Stock of the Company until such time as the Company notified the Transfer
Agent. The Company failed to make required sinking fund payments in 1994 and was
unable to pay the principal balance of the Debentures due on December 31, 1994
resulting in 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 issues 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 Judgment 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
12
<PAGE>
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.
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 Judgment been entered. If the proposed
settlement is not consummated, there can be no assurance that the Judgment will
not be entered and the Company will be required to pay the amount of the
Judgment, including any costs, interest and penalties related thereto.
The continued default in the Debentures by the Company may result in Company
being subject to additional legal proceedings by the Transfer Agent/Trustee
under the Indenture or from other holders seeking immediate payment of the
$102,500 plus related interest and penalties. While the Company hopes to cure
the default or, in the alternative, reach an acceptable settlement arrangement
with the holders, there can be no assurance that the funds will be available in
the future to meet all of the Company's obligations.
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 any future conditions set forth by the
DMG regarding its permit or that violations will not arise in the future.
There can be no assurance, however, that the Company will adequately address the
groundwater and tailings issues relating to its notification to place its permit
into Temporary Cessation, which may result in violations cited by the DMG. For
future information regarding Temporary Cessation, See Management Discussion and
Analysis in Part I of this Report and Item 5. Other Information in Part II of
this Report.
Item 3. Default on Senior Securities
See Item 1. Legal Proceedings - Convertible Debenture
Item 5. Other Information
Acquisition of USM, Shoppers Online and Freebees
On January 18, 2000, the Company, William C. Martucci and US Mining, Inc. a New
Jersey corporation 100% owned by Mr. Martucci, entered into an agreement whereby
the Company agreed to acquire USM in exchange for 7,473,013 shares of the Common
Stock or approximately 85% of the Company's common stock (the "Transaction").
The agreement may be terminated by unanimous consent of the parties, in the
event of a breach of the terms of the contract by any of the parties, in the
event of an injunction preventing the closing or if the closing has not occurred
on or before July 16, 2000. As a condition to closing, the Company must seek
shareholder approval of the Transaction. In addition, the Company has agreed to
grant Martucci piggyback and demand registration rights with respect to the
shares he is to receive in the Transaction. The Company has filed a proxy
statement with respect to the Transaction, which is currently subject to a
review by the staff.
In March 2000, the Company reached an agreement in principal with Mr. Martucci
to acquire Shoppers Online, Inc. and Freebees, Inc., two related Internet
companies 100% owned by him. Shoppers Online was developing an on line shopping
portal (www.shoppersonline.com) and incubator for the development of
business-to-business e-commerce. Freebees is currently developing a give-away,
fulfillment and refund web site to be linked to Shoppers Online which will allow
Internet consumers to participate in promotional and redemption programs offered
by
13
<PAGE>
various companies operating in both e-commerce and brick and mortar retail
businesses. After completing its preliminary due diligence, the Company
determined that it was not willing to proceed with the acquisition of these
companies primarily due to the fact that neither company was fully operational
nor did either of them generate any revenues. While the Company is open to
acquiring new businesses, management felt that the acquisition of non-revenue
generating entities did not add any value to the Company. Therefore, Mr.
Martucci was notified that the Company was no longer interested in pursuing the
acquisition of Shoppers On Line and Freebees but would proceed with the
acquisition of US Mining as agreed in January 2000.
As of the date of this report, the Company has not obtained shareholder approval
for the acquisition of US Mining. Both the Company and Mr. Martucci have agreed
to extend the term of the acquisition agreement to September 30, 2000 to afford
the Company additional time to obtain the approval of its shareholders.
Temporary Cessation Notification
Throughout 1999, inspections of the Franklin Mining properties revealed that
certain reclaimation issues still remained outstanding at the property.
Specifically, certain drainage problems and substandard linings at the tailings
disposal areas created potential hazards and required protection measures are
addressed. Tailings Pond No. 5 was of specific concern to the DMG. After several
extensions had been granted, the Company was unable to complete all of the
preventive work required by the DMG. Due to lack of funds, the Company has not
been able to institute its paste backfill program, which it believes would
alleviate the problems currently existing at its tailings disposal area.
On January 5, 2000, the Company submitted a letter to the DMG to clarify why,
among other things, it has not completed all of the recommended preventive
measures at the site, specifically with respect to its tailings ponds, and
commenced operations. The Company explained its difficulty in obtaining needed
financing to continue its reclaimation and remediation plans and to begin mining
and milling operations at the Franklin Mines due to the depressed price of gold.
Therefore, the Company concluded that it is economically unfeasible to mine and
mill at the properties at this time. The company further stated, however, that
it did not wish to abandon its business plan or reclaim the property but rather
intends to maintain the mine and mill site and to comply with all DMG
regulations with hopes of restarting the mine and mill as soon as the price of
gold makes it profitable to do so.
On February 7, 2000, the DMG responded to the Company's correspondence with a
recommendation that the Company's mining permit be placed in Temporary
Cessation. Temporary Cessation is a limited period of non-production, which
results when an operator plans to temporarily cease production for at least 180
days upon the filing of notice thereof with the DMG. In the event that a
Temporary Cessation is granted, no further reclaimation work or mining work
would be required for the duration of the Temporary Cessation, beyond basic
maintenance and reclaimation required to keep the site from further
deterioration. The DMG further indicated that should the Company choose to apply
for Temporary Cessation, certain of the tailings pond area would be required to
be stabilized and the groundwater and the stability of the tailings ponds must
be protected from further deterioration. The DMG required that any notice of
Temporary Cessation submitted must specifically address an alternative interim
reclaimation plan for Tailings Pond No. 5 as well as outlining the temporary
stabilization measures needed to comply with these requirements.
As recommended by the DMG, the Company requested a change of status of its
permit to Temporary Cessation. Following a meeting of the DMG and
representatives of the Company held on February 10, 2000, the DMG set forth the
measures in a letter dated March 9, 2000, which must be taken by the Company to
bring the site into compliance with groundwater regulations and to stabilize the
tailings pond and site during the Temporary Cessation. The Company was notified
by the DMG, after its last inspection, that it must submit final groundwater
testing results and make some minor adjustments to equipment at the mining
properties by September 4, 2000 for its Temporary Cessation request to be
granted. In addition, before coming out of Temporary Cessation, the Company must
commit to determining whether the current conditions of its tailings disposal
areas is adequate for further tailings disposal and in no event will the
Franklin Mill be permitted to operate without prior approval by DMG of a
14
<PAGE>
comprehensive tailings disposal plan.
Despite the Company's decision to place its permit into Temporary Cessation, the
Company remains hopeful that economically viable commercial mining operations at
the Idaho Springs mining facilities can be conducted in the future, however,
given the current economic climate, it is unlikely that the Company will
commence operations in the year 2000. It is the Company's intention, however, to
prepare for full-scale operations should the price of gold reach $350 per ounce
or greater. The Companies will continue to work closely with Colorado state
mining regulatory agencies in preparation and anticipation of full-scale
operations at the Franklin Mines and Franklin Mill.
Item 6. Exhibits and Reports on Form 8-K (all filed in original filing)
A. Exhibits
(a)
(b) Press Releases dated: May 1, May 9, June 20, and July 26, 2000
B. Reports on Form 8-K
NONE
SIGNATURE
In accordance with the requirements of the Securities and Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
WCM CAPITAL, INC.
/s/ Robert Waligunda
Date: August 31, 2000 ---------------------------------
Robert Waligunda, President
15
<PAGE>
IMMEDIATE RELEASE
WCM Capital, Inc. GOES INTERNET
New York, New York/Idaho Springs, Colorado - May 1, 2000 - WCM CAPITAL, INC.
(NASDAQ symbol WCMC) announced today that it has reached an agreement in
principal with William C. Martucci to acquire Shoppers OnLine, Inc. and
Freebees, Inc., two related Internet companies 100% owned by him. Shoppers
Online currently operates an on line shopping portal (www.shoppersonline.com) an
incubator for the development of business-to-business e-commerce. Freebees is
currently developing a give-away, fulfillment and refund web site to be linked
to Shoppers Online which will allow Internet consumers to participate in
promotional and redemption programs offered by various companies operating in
both e-commerce and brick and mortar retail businesses. It is anticipated that
the Company and Mr. Martucci will amend their agreement, dated January 18, 2000,
pursuant to which the Company is to acquire US Mining, Inc. (the "USM
Acquisition Agreement") to include these Internet businesses as part of the
stock for stock transaction contemplated thereby. In exchange for the
acquisition of 100% of the outstanding stock of US Mining, Inc., Shoppers Online
and Freebees, Martucci will retire indebtedness of approximately $2,000,000 of
the Company currently owed to US Mining and will receive 85% of the Company's
common stock.
US Mining remains committed to fund the Company on an as needed basis until the
earlier of the closing of the transactions or December 31, 2000. The amended
acquisition agreement is conditioned upon the approval of the stockholders of
the Company at a special meeting of shareholders.
CONTACT: Robert Waligunda, Pres. (212) - 344-2828
16
<PAGE>
IMMEDIATE RELEASE
New York, New York/Idaho Springs, Colorado - May 9, 2000 - WCM CAPITAL, INC.
(NASDAQ symbol "WCMC") has been informed that E-Pawn.com (OTC BB: "EPWN") has
acquired 19% of Shoppers Online, Inc. and FreeBees, Inc. for cash and stock.
E-Pawn (www.e-pawn.com) is a multi-faceted portal, software developer and online
auction company. The Company recently announced its plans to acquire both
Shoppers Online and FreeBees and believes that E-Pawn will be instrumental in
expanding both businesses.
In a press release today, Mr. Eli Leibowitz, president of E-Pawn, stated that he
believed the investment by E-Pawn in Shoppers Online "...is a key step in
executing on our business plan to become one of the dominant online retailers in
the industry".
Shoppers Online (www.shoppersonline.com) currently operates an online shopping
portal and incubator for the development of business-to-business e-commerce.
FreeBees is developing a giveaway, fulfillment and refund website to be linked
to Shoppers Online to allow internet users to participate in promotional and
redemption programs offered by various companies operating in both e-commerce
and brick and mortar retail businesses.
In addition to Shoppers Online and Freebees, the Company has also agreed to
acquire US Mining, Inc., a New Jersey corporation which invests in mining
properties. In exchange for the acquisition of US Mining, Inc., Shoppers Online
and Freebees, approximately $2,000,000 of indebtedness of the Company to US
Mining will be retired and 85% of the Company's common stock will be issued in
consideration for the transaction. The acquisition is conditioned upon the
approval of the stockholders of the Company.
CONTACT: Robert Waligunda, Pres. (212) - 344-2828
17
<PAGE>
IMMEDIATE RELEASE
TEMINATION OF LETTER OF INTENT
New York, New York/Idaho Springs, Colorado - June 20, 2000 - WCM CAPITAL, INC.
(NASDAQ symbol "WCMC") announced today that it has terminated its letter of
intent with William C. Martucci to acquire Shoppers Online, Inc. and Freebees
Incorporated, Inc. The primary reason for the Company's decision not to proceed
with these transactions was that the Internet based companies were still
developmental in nature and were not fully operational or income generating to
date. Moreover, recent developments regarding e-pawn.com, in each of Shoppers
OnLine and Freebees further influenced the Company's decision. However, the
Company remains committed to concluding its acquisition of US Mining, Inc., in
accordance with the Stock Purchase Agreement, among the Company, US Mining, Inc.
and William C. Martucci, the sole shareholder of US Mining and current director
of the Company. Upon the consummation of the Stock Purchase Agreement, it is
anticipated that Mr. Martucci will own approximately 85% of the outstanding
shares of the Company and the indebtedness currently owed to US Mining, Inc. by
the Company will be forgiven. The consummation of the acquisition of US Mining,
Inc. is contingent upon approval of the Company's stockholders. Management,
however, is continuing to explore other possible business combinations in hopes
of acquiring viable companies, which will generate much needed revenues to the
Company.
CONTACT: Robert Waligunda, Pres. (212) - 344-2828
18
<PAGE>
IMMEDIATE RELEASE
Hayden Lease Purchase Extended
to December 31, 2000
New York, New York/Idaho Springs, Colorado - July 26, 2000 - WCM CAPITAL, INC.
(NASDAQ symbol "WCMC") WCM Capital, Inc. has been informed that US Mining, Inc.
has reached an agreement with Audrey Hayden to extend the purchase option of the
Hayden Lease through December 31, 2000. US Mining, Inc. renewed its commitment
to fund operations and pay expenses of the Company through December 31, 2000.
Additionally, the Company is currently exploring merger and/or acquisition
opportunities to increase shareholder value. Said Mr. Waligunda, president of
the Company, "It is our goal to bring value to our investors and shareholders by
exploring acquisition targets or merger candidates which would be complimentary
to Company.
CONTACT: Robert Waligunda, Pres. (212) - 344-2828
Statements in this press release, other than statements of historical
information, are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Investors are cautioned that
forward-looking statements are inherently uncertain. Actual performance and
results may differ materially from that projected or suggested due to certain
risks and uncertainties including, without limitation, risks associated with
mining and milling operations, the availability of debt and equity capital on a
reasonable terms and the effects of government regulations and operations risks.
Additional information concerning certain risks and uncertainties that could
cause actual, results to differ materially from that projected or suggested is
contained in the Company's filings with the Securities and Exchange Commission
(SEC) over the past 12 months, copies of which are available from the SEC or may
be obtained upon request from the Company. The forward-looking statements
contained herein represent the Company's judgment as of the date of this
release, and the Company cautions readers not to place undue reliance on such
statements.
19
