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 September 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 September 30, 2000 1,642,207
---------------
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
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<PAGE>
WCM CAPITAL, INC.
(AN EXPLORATION STAGE COMPANY)
CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
September 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
$2,206,603 and $2,166,261 4,577,492 4,617,834
Mining reclamation bonds 139,071 137,016
------------ ------------
$ 4,716,563 $ 4,754,850
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 537,571 $ 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 1,721,855 1,470,295
------------ ------------
TOTAL CURRENT LIABILITIES 2,653,351 2,553,269
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, par value $.01 per share;
40,000,000 shares authorized; 1,642,207(2000)
1,318,767 shares (1999)
issued and outstanding 16,422 13,188
Additional paid-in capital 18,682,713 18,390,360
Deficit accumulated during the exploration stage (16,635,923) (16,201,967)
------------ ------------
2,063,212 2,201,581
------------ ------------
$ 4,716,563 $ 4,754,850
============ ============
</TABLE>
See notes to condensed financial statements.
2
<PAGE>
WCM CAPITAL, INC.
(AN EXPLORATION STAGE COMPANY)
STATEMENTS OF OPERATIONS
NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION) TO SEPTEMBER 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Three Months Cumulative
Ended September 30 Ended September 30 from
2000 1999 2000 1999 Inception
------ ----- ----- ---- ------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Sales $ -- $ -- $ -- $ -- $ 876,082
Interest income 2,055 1,743 685 672 553,164
Other income -- -- -- -- 79,397
----------- ----------- ----------- ------------ ------------
2,055 1,743 685 672 1,508,643
----------- ----------- ----------- ------------ ------------
EXPENSES:
Mine expenses and environmental remediation costs 48,258 38,992 11,372 13,399 3,669,368
Write-down of mining and milling and other property
and equipment -- -- -- -- 1,795,000
Depreciation and depletion 40,342 20,030 13,447 6,676 2,401,952
General and administrative expenses 221,952 93,442 74,099 24,018 6,704,157
Interest expense 125,460 108,031 43,105 37,350 1,411,892
Amortization of debt issuance expense -- -- -- -- 683,047
Equity in net loss and settlement of claims of
Joint Venture -- -- -- -- 1,059,971
Other -- -- -- -- 419,179
----------- ----------- ----------- ------------ ------------
436,012 260,495 142,023 81,443 18,144,566
----------- ----------- ----------- ------------ ------------
NET LOSS $ (433,957) $ (258,752) $ (141,338) $ (80,771) $(16,635,923)
=========== =========== =========== ============ ============
BASIC LOSS PER COMMON SHARE $ (.33) $ (.20) $ (.11) $ (.06)
=========== =========== =========== ============
WEIGHTED AVERAGE SHARES OUTSTANDING 1,318,767 1,318,767 1,318,767 1,318,767
=========== =========== =========== ============
</TABLE>
See notes to condensed financial statements.
3
<PAGE>
WCM CAPITAL, INC.
(AN EXPLORATION STAGE COMPANY)
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION)
TO SEPTEMBER 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
from
2000 1999 Inception
--------- -------------- ----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(433,957) $ (258,752) $(16,635,924)
Adjustments to reconcile net loss to net cash used in
Operating activities:
Depreciation and depletion 40,342 20,030 2,401,952
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 (2,055) (1,743) (14,071)
Accounts payable and accrued expenses 144,110 17,295 1,095,375
--------- ----------- ------------
NET CASH USED IN OPERATING ACTIVITIES (251,560) (233,170) (6,812,479)
--------- ----------- ------------
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 251,560 233,170 2,133,338
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 251,560 233,170 12,313,152
--------- ----------- ------------
</TABLE>
(Continued)
4
<PAGE>
WCM CAPITAL, INC.
(AN EXPLORATION STAGE COMPANY)
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION)
TO SEPTEMBER 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 $ -- $ -- $
============= ============= ============
</TABLE>
NONCASH INVESTING AND FINANCING ACTIVITIES:
During the nine months ended September 30, 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 nine months ended September 30, 2000
accrued interest has been reduced by $295,587 and additional paid in capital has
been credited by $295,587.
See notes to condensed financial statements.
5
<PAGE>
WCM CAPITAL, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 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 September 30, 2000, and its
results of operations and cash flows for the nine months and three
months ended September 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 nine and three months ended
September 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
September 30, 2000, the Company has an accumulated deficit of
$16,635,923, current liabilities of $2,653,351, and a working capital
deficiency of $2,653,351. 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 owed to USM on any advances 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
SEPTEMBER 30, 2000
NOTE 2 - BASIS OF PRESENTATION continued:
Substantially all of the $4,577,492 of mineral properties and
equipment included in the accompanying balance sheet as of September
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
September 30, 2000:
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
(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 September 30, 2000. Interest
is being accrued at rates between 8% and 17% per annum.
Accrued interest on the above notes at September 30, 2000 aggregated
approximately $81,000.
NOTE 4 - CONVERTIBLE DEBENTURES
The Company's convertible debt at September 30, 2000 consist of:
12.25% convertible debenture originally due 12/31/94 $145,000
As of September 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 $98,000. 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
SEPTEMBER 30, 2000
NOTE 5 - NOTE PAYABLE - RELATED PARTY
The Company had outstanding a 8% promissory note balance of
$1,721,855, at September 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 the nine months ended September 30, 2000, USM forgave
all accrued interest on the note payable and accordingly $295,587 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
SEPTEMBER 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 is required 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
SEPTEMBER 30, 2000
NOTE 6 - COMMITMENTS AND CONTINGENCIES (Continued)
On November 2, 2000 American Stock Transfer and Trust Company served the Company
with a summons, as Trustee under the Indentive dated January 2, 1990 to receive
damages on behalf of the holders of the Company's 12-1/4% Convertible Debenture
Holders in the amount of $142,000.00 plus interest and other fees. This action
is as a result of the default on the Debentures described above and is separate
and apart from the September 1997 action, which involves specific debenture
holders.
(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 three quarters
ended September 30, 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.
UPDATE......The Company expects that the DMG will grant its application for
Temporary Cessation once these final items have been addressed.
10
<PAGE>
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.
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 will cover the general, administrative and other
costs approximated at $20,000 per month. 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:
Nine and Three months ended September 30, 2000 Compared to Nine and Three Months
Ended June 30, 1999
Company had a net loss of $433,957 and $141,338 for the nine and three months
ended September 30, 2000 respectively, as compared to a net loss of $258,752 and
$80,771 during the same periods in 1999.
Environmental remediation costs and mine expenses were $48,258 and $11,372 for
the nine and three months ended September 30, 2000 respectively, compared to
$38,992 and $13,399 during the same periods in 1999. This increase was due to
the payment of County taxes during 2000.
General and administrative expenses were $221,952 and $74,099 for the nine and
three months ended September 30, 2000 respectively, compared with $93,442 and
$24,018 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 and the reversal of previously accrued costs during the
quarter ended March 31, 1999 (approximately $38,000).
Interest expense was $125,460 and $43,105 during the nine and three months ended
September 30, 2000 respectively, as compared to $108,031 and $37,350 during the
same periods in 1999. This increase was due to interest incurred on the USM
note.
11
<PAGE>
Nine and Three Months ended September 30, 1999 Compared to Nine and Three Months
Ended September 30, 1998
The Company had a net loss of $258,752 and $180,771 for the nine and three
months ended September 30, 1999 respectively, as compared to a net loss of
$825,306 and $191,054 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 $38,992 and $13,399 for
the nine and three months ended September 30, 1999, respectively, compared to
$52,796 and $14,305 during the same periods in 1998. This decrease was due to
lower levels of activities in the 1999 periods.
General and administrative expenses were $93,442 and $24,018 for the nine and
three months ended September 30, 1999 respectively, compared with $301,322 and
$86,102 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 $138,000.
Interest expense was $108,031 and $37,350 during the nine and three months ended
September 30, 1999 respectively, as compared to $89,505 and $32,108 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.
12
<PAGE>
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 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.
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. On November 2, 2000 American Stock Transfer and
Trust Company served the Company with a summons, as Trustee under the Indentive
dated January 2, 1990 to receive damages on behalf of the holders of the
Company's 12-1/4% Convertible Debenture Holders in the amount of $142,000.00
plus interest and other fees. This action is as a result of the default on the
Debentures described above and is separate and apart from the September 1997
action, which involves specific debenture holders.
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 2. Changes in Securities and Use of Proceeds
NONE
Item 3. Default on Senior Securities
See Item 1. Legal Proceedings - Convertible Debenture
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Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
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 (the
"USM 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 (the "Drop Dead Date").
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 was under review by the staff.
On or about July 16, 2000, USM extended the Drop Dean Date to September 30,
2000. USM refused to further extend the Drop Dead Date past, September 30, 2000,
which resulted in the expiration of the USM Agreement. As a result, the Company
withdrew its proxy statement with respect to the USM Agreement. The Company has
not recommenced negotiations with USM nor can there be any assurance that any
additional agreement will be reached with respect to the transaction as that USM
will not determine to foreclose on the USM note.
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.
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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 comply some minor
adjustments to the property 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 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
NONE
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: November 14, 2000 -------------------------------------
Robert Waligunda, President
