U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the Quarter Ended March 31, 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 March 31, 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.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
March 31, 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
$2,179,709 and $2,166,261 4,604,386 4,617,834
Mining reclamation bonds 137,701 137,016
------------ ------------
$ 4,742,087 $ 4,754,850
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 699,289 $ 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 1,627,438 1,470,295
------------ ------------
TOTAL CURRENT LIABILITIES 2,720,652 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 18,390,360 18,390,360
Deficit accumulated during the development stage (16,382,113) (16,201,967)
------------ ------------
2,021,435 2,201,581
------------ ------------
$ 4,742,087 $ 4,754,850
============ ============
</TABLE>
See notes to condensed financial statements.
2
<PAGE>
WCM CAPITAL, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION)
TO MARCH 31, 2000
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
from
2000 1999 Inception
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Sales $ -- $ -- $ 876,082
Interest income 685 399 551,794
Other income -- -- 79,397
------------ ------------ ------------
685 399 1,507,273
------------ ------------ ------------
EXPENSES:
Mine expenses and environmental remediation costs 480 14,677 3,621,590
Write-down of mining and milling and other property
and equipment -- -- 1,795,000
Depreciation and depletion 13,447 6,677 2,375,057
General and administrative expenses 126,768 25,642 6,608,973
Interest expense 40,137 34,599 1,326,569
Amortization of debt issuance expense -- -- 683,047
Equity in net loss and settlement of claims of Joint Venture -- -- 1,059,971
Other -- -- 419,179
------------ ------------ ------------
180,832 81,595 17,889,386
------------ ------------ ------------
NET LOSS $ (180,147) $ (81,196) $(16,382,113)
============ ============ ============
BASIC LOSS PER COMMON SHARE $ (.14) $ (.06)
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 1,318,767 1,318,767
============ ============
</TABLE>
See notes to condensed financial statements.
3
<PAGE>
WCM CAPITAL, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION)
TO MARCH 31, 2000
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
from
2000 1999 Inception
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (180,147) $ (81,196) $(16,382,113)
Adjustments to reconcile net loss to net cash used in
Operating activities:
Depreciation and depletion 13,447 6,677 2,375,056
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 (685) (399) (12,701)
Accounts payable and accrued expenses 10,240 (47,047) 961,505
------------ ------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (157,145) (121,965) (6,718,064)
------------ ------------ ------------
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 157,145 121,965 2,038,923
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 157,145 121,965 12,218,737
------------ ------------ ------------
</TABLE>
(Continued)
4
<PAGE>
WCM CAPITAL, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION)
TO MARCH 31, 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>
See notes to condensed financial statements.
5
<PAGE>
WCM CAPITAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 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 March 31, 2000, and its results of
operations and cash flows for the three months ended March 31, 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 three months ended March 31, 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 March
31, 2000, the Company has an accumulated deficit of $16,382,114, current
liabilities of $2,720,652, and a working capital deficiency of $2,720,652.
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 Co. and its affiliates 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 and its affiliates 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 and its affiliates. 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.
Substantially all of the $4,604,386 of mineral properties and equipment
included in the accompanying balance sheet as of March 31, 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.
6
<PAGE>
WCM CAPITAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 3 - NOTES PAYABLE RELATED PARTY AND OTHERS
Notes payable related party and others consist of the following at March
31, 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 March 31, 2000. Interest is being accrued at rates
between 8% and 17% per annum.
Accrued interest on the above notes at March 31, 2000 aggregated
approximately $71,000.
NOTE 4 - CONVERTIBLE DEBENTURES
The Company's convertible debt at March 31, 2000 consist of:
12.25% convertible debenture originally due 12/31/94 $145,000
As of March 31, 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 $88,000. 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.
NOTE 5 - NOTE PAYABLE - RELATED PARTY
The Company had outstanding a 8% promissory note balance of $1,627,438, at
March 31, 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. Accrued interest at March 31, 2000 was approximately $229,000.
7
<PAGE>
WCM CAPITAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 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 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.
8
<PAGE>
WCM CAPITAL, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 6 - COMMITMENTS AND CONTINGENCIES (Continued)
(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. In the event the Company completes all of the required
actions by May 30, 2000, a 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.
(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.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Liquidity and Capital Resources
The Company had no active mining or milling operations during the first quarter
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 by May 30, 2000. Thus, the Company's efforts have been focused on
addressing these issues.
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 1999.
U.S. Mining Co. and its affiliates have 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 and its affiliates 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:
Three months ended March 31, 2000 and 1999
The Company had no active mining or milling operations during 2000.
The Company had a net loss of $180,147 for the three months ended March 31, 2000
as compared to a net loss of $81,196 during the same period in 1999. The
increase of $98,951 was attributable to:
(a) A decline in mine expenses and remediation costs from $14,677 (1999)
to $480 (2000) resulted from a decrease in mine site activities.
(b) Depreciation expense increased from $6,677 in 1999 to $13,447 in the
first quarter of 2000 due to Management's recording of depreciation
expense on idle equipment in 2000.
10
<PAGE>
(c) General and administrative expenses increased from $25,642 in 1999 to
$126,768 in 2000 an increase of $101,126. 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).
(d) Interest expense increased from $34,599 in 1999 to $40,137 in 2000 due
to additional interest on the USM note.
Three months ended March 31, 1999 and 1998
The Company had a net loss of $81,196 for the three months ended March 31, 1999
as compared to a net loss of $171,430 during the same period in 1998.
General and administrative expenses were $25,642 for the first quarter 1999
compared with $101,494 during the same period 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 $34,599 during the 1999 quarter as compared to $27,095 in
the 1998 quarter. 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.
11
<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.
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
12
<PAGE>
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 currently operates 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 various companies operating in both e-commerce and brick and mortar retail
businesses. It is anticipated that the Company and Mr. Martucci will enter into
a definitive agreement with respect to the acquisition of these Companies prior
to filing its amendment to its proxy statement which was filed in January 2000.
It is contemplated that the Company will acquire all three entities under the
same term as the original USM acquisition. Therefore, in exchange for the
acquisition of USM, Shoppers Online and Freebees, Martucci will retire
indebtedness of approximately $2 Million of the Company currently owned to US
Mining and will receive 85% of the Company's common stock.
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 be
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
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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
has been given until April 6, 2000 to submit a written commitment to complete
all of the required actions by May 30, 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 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.
After consultation with USM and completion of preliminary due diligence with
respect to the feasibility of commencing mining operations at the Shafter Mining
properties, the Company decided not to pursue this venture at this time and
notified the other parties of its decision on or about April 1999.
Item 6. Exhibits and Reports on Form 8-K (all filed in original filing)
A. Exhibits
(a) Letter of Intent of Freebees, Shoppers Online
(b) Press Release dated: January 24, 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.
Date: May 15, 2000 /s/ Robert Waligunda
----------------------------------------
Robert Waligunda, President
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WCM CAPITAL, INC.
76 BEAVER STREET SUITE 500
NEW YORK, NY 10005
PHONE (212)344-2828 FAX (212)344-4537
April 17, 2000
Mr. William Martucci
U. S. Mining, Inc.
Shoppers Online, Inc.
Freebees, Inc.,
3 Dundar Road
Springfield, New Jersey 07081
Dear Mr. Martucci:
This will confirm our understanding concerning the proposed purchase (the
"Transaction') by WCM Capital, Inc., a Delaware corporation ("WCM") of all of
the issued and outstanding shares of common stock ("USM Shares") of U.S. Mining,
Inc., a New Jersey corporation ('USM"), ("SOL Shares") Shoppers Online, Inc. a
New Jersey corporation ("SOL") and ("FB Shares") Freebees, Inc, a New Jersey
corporation ("FB") in exchange for shares of WCM's common stock ("WCM Shares")
which, upon issuance, will represent approximately 85% of the issued and
outstanding WCM Shares. This letter does not contain all matters upon which
agreement must be reached in order for the Transaction to be consummated, but is
intended to bind the parties to certain of the material provisions of the
Transaction. The terms of our understanding are as follows:
1. William Martucci, the sole shareholder of USM, SOL & FB ("USM, SOL & FB
Shareholder"), shall transfer to WCM, all USM Shares, all SOL Shares and all FB
Shares owned by him, which represent 100% of the issued and outstanding of USM
Shares, SOL Shares an FB Shares.
2. In exchange for such USM, SOL & FB Shares, WCM will, at the closing of
the Transaction, cause to be issued to the USM Shareholder, SOL Shareholder & FB
Shareholder, or nominee, such number of WCM Shares which, upon issuance, will
represent approximately 85% of a definitive agreement and as a condition of
closing of the Transaction, cause a special meeting of its stockholders to be
convened to, among other things, approve all of terms and conditions of the
Transaction.
3. USM further agrees that it shall loan, or cause to be loaned to WCM such
funds as may be necessary to allow WCM to proceed with the Transaction. WCM
hereby agrees that it shall provide security for such loans in a form
satisfactory to USM.
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<PAGE>
The parties agree that the terms and conditions of this letter are to be
kept confidential and shall be treated as such until such time as the parties
shall agree to publicly disclose the same. As soon as the parties shall
determine that the terms of this letter should be announced publicly but not
later than three business days from the date of the execution of a definitive
agreement, WCM shall issue a press release in the form and substance agreeable
to the parties.
Following your signature, the parties will cause their respective officers,
employees, attorneys, agents, investment bankers, accountants and other
representatives working on the Transaction to cooperate with each other with
respect to the Transaction until the Transaction is consummated or negotiations
with respect thereto are terminated.
Following your signature, the parties agree that until the Transaction is
consummated or negotiations with respect thereto are terminated, to conduct
their respective business and operations in all respects only in the ordinary
course unless otherwise consented to in writing by the other party.
Following your signature, until the Transaction is consummated or
negotiations with respect thereto are terminated, each party will afford to the
officers, employees, attorneys, agents, investment bankers, accountants, and
other representatives of the other party working on the Transaction free and
full access to its plants, properties, books, and records, will permit them to
make extracts from and copies of such books and records, and will from time to
time furnish them with such additional financial and operating data and other
information as to its financial condition, results of operations, business,
properties, assets, liabilities, or future prospects as they from time to time
may request. Each party will cause its independent certified public accountants
to make available to the other party and its independent certified public
accountant, the work papers relating to any audit of its financial statements in
the last three years.
Each party shall insure that all confidential information, including, but
not limited to, the terms of this letter, which such party or any of its
respective officers, directors, employees, attorneys, agents, investment
bankers, or accountants may now possess or may hereafter create or obtain
relating to the financial condition, results of operations, business,
properties, assets, liabilities, or future prospects of the other party, any
affiliate of the other party, or any customer or supplier of such other party or
any such affiliate shall not be published, disclosed, or made accessible by any
of them to any other person or entity at any time or used by any of them, in
each case without the prior written consent of the other party, or in the case
of the terms of this letter, without the prior consent of both parties as set
forth herein; provided, however, that the restrictions of this sentence shall
not apply (a) as may otherwise be required by law, (b) as may be necessary or
appropriate in connection with the enforcement of this Agreement, (c) to the
extent such information shall have otherwise become publicly available, or (d)
as to USM, SOL and FB to disclosure by or on its behalf to existing or
prospective lenders or to others whose consent may be required or desirable in
connection with obtaining the financing or consents
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<PAGE>
which are required or desirable to consummate the Transaction. Each party shall,
and shall cause all of such other persons and entities who received confidential
data from it to, deliver to the other party all tangible evidence of such
confidential information to which the restrictions of the foregoing sentence
apply at such time as negotiations with respect to the Transaction are
terminated before the parties enter into any formal agreement as contemplated by
this letter of intent.
Unless otherwise terminated in accordance with this paragraph, this letter
constitutes a binding agreement among the parties and constitutes an agreement
by the parties to use their best efforts to negotiate, execute and deliver of
formal agreements setting forth all of the terms and conditions upon which the
Transaction may be consummated. It is understood that this is a binding letter
of intent and the parties hereto agree to the contents hereof and agree to
proceed in good faith to work out the details of the Transaction; however, USM,
SOL and FB may, upon written notice to WCM, terminate its obligations hereunder
at any time prior to the execution of a definitive agreement (hereinafter a
"Termination"). In the event of a Termination, neither party shall have any
legal obligation to the other (other than those obligations contained in the
preceding paragraph of this letter, and the obligations contained in the
preceding paragraph shall continue to apply after negotiations with respect to
the Transaction are terminated). This letter may not be assigned by either of
the parties hereto. Neither party shall be responsible for any of the other's
expenses in connection with the negotiations, documents, or transactions
contemplated hereby, except as otherwise contemplated herein.
If this letter accurately reflects our understanding, please so indicate by
signing the original and duplicate of this letter, and returning a fully
executed copy to the undersigned, so that we can promptly commence work on the
formal documents relating to the Transaction.
Accepted and agreed to
this 17th day of April, 2000 WCM CAPITAL, INC.
By: /s/ Robert Waligunda
-----------------------------------
Robert Waligunda, Pres.
Accepted and agreed to U. S. Mining, Inc.
this 17th day of April, 2000
By: /s/ William Martucci
-----------------------------------
William Martucci, President
17
<PAGE>
Accepted and agreed to Shoppers Online, Inc.
this 17th day of April, 2000
By: /s/ William Martucci
-----------------------------------
William Martucci, President
Accepted and agreed to Freebees, Inc.
this 17th day of April, 2000
By: /s/ William Martucci
-----------------------------------
William Martucci, President
18
FOR IMMEDIATE RELEASE
New York, New York/Idaho Springs, Colorado - JANUARY 24, 2000 - WCM
CAPITAL, INC. (NASDAQ symbol WCMC) announced today that the Board of Directors
of the Company and William C. Martucci, President of U.S. Mining, Inc. (USM) a
New Jersey corporation, having entered into a Letter of Intent, formalized that
letter by signing a Stock Purchase Agreement on January 18, 2000. The Stock
Purchase Agreement will allow the Company to acquire 100% of USM stock for 85%
of the Company's outstanding common stock. The Company will put the Stock
Purchase Agreement before the shareholders at a Special Shareholders meeting
scheduled for late February 2000.
Robert J. Waligunda, president of USM, stated, "I believe that this agreement is
necessary for future viability of the Company and should be approved by the
stockholders."
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.
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