SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [FEE REQUIRED] OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended 12/31/99 Commission File No. 0-9416
WCM CAPITAL, INC.
(Name of small business issuer in its charter)
Delaware 13-2878202
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
76 Beaver Street, New York, New York 10005
(Address of principal executive offices)
Issuers telephone number: 212-344-2828
Securities Registered under Section 12(b) of the Exchange Act: None
Securities Registered under Section 12(g) of the Exchange Act: Common
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or such shorter
period that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days. Yes _X_ No __
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $ -0-
-------------
State the aggregate market value of the voting and non-voting common equity
stock held by non-affiliates computed by reference to the price at which the
common equity was sold, or the average bid and asked price of such common equity
as of a specified date within the past 60 days
$ 7,912,602
State the number of shares outstanding of each of issuers' class of common
equity, as of the latest practical date.
1,318,767 as of March 15, 2000
DOCUMENTS INCORPORATED BY REFERENCE IN PART III - SIX
Transitional Small Business Disclosure Format (check one) Yes___ No _X_
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PART I TABLE OF CONTENTS PAGE
Item 1 Description of Business 03
Item 2 Properties 07
Item 3 Legal Proceedings 15
Item 4 Submission of Matters to a Vote of Security Holders 19
PART II
Item 5 Market for Registrant's Common Equity and Related 21
Stockholder Matters
Item 6 Management's Discussion and Analysis or Plan 22
of Operation
Item 7 Financial Statements F-1/F-29
Item 8 Changes in and Disagreements with Accountants 28
on Accounting and Financial Disclosure
PART III
Item 9 Directors, Executive Officers, Promoters, and Control 28
Person; Compliance with Section 16(a) of the
Exchange Act
Item 10 Executive Compensation 30
Item 11 Security Ownership of Certain Beneficial Owners 30
and Management
Item 12 Certain Relationships and Related Transactions 31
PART IV
Item 13 Exhibits, Reports on Form 8-K 34
Signatures 37
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PART I
Item 1. Description of Business
General
The Company incorporated on December 1, 1976 under the laws of the State of
Delaware, is engaged in the exploration, development and mining of precious and
nonferrous metals, including gold, silver, lead, copper and zinc. The Company
owns or has an interest in a number of precious and nonferrous metal properties.
The Company's principal mining property is the Franklin Mines, located near
Idaho Springs in Clear Creek County, Colorado, for which the Company acquired
the exclusive right to explore, develop, mine and extract all minerals located
in approximately 51 owned and/or patented mining claims (the "Franklin Mines")
and a crushing and flotation mill which is located on the site of the Franklin
Mines (the "Franklin Mill"). While none of its properties were operational in
fiscal year 1999, the Company continues its rehabilitation of the property in
anticipation of the commencement of operations in the future.
History and Development of the Company
The claims that comprise the Franklin Mines are located on a site upon which
placer gold was discovered above the ground at Idaho Springs, Colorado in 1859.
The Franklin Mines vein system was discovered in 1865. Thereafter, mining
commenced on the site in 1865 and continued on an almost uninterrupted basis
through 1915 until the outbreak of World War I caused curtailment of mining
operations in the area. The principal minerals extracted during this period were
gold, silver, lead, copper, and zinc. The Franklin Mines have not operated on a
continuous or consistent commercial basis since 1915.
On December 26, 1976, the Company acquired Gold Developers and Producers
Incorporated, a Colorado corporation that leased 28-patented mining claims from
Audrey and David Hayden and Dorothy Kennec pursuant to a mining lease and option
to purchase, dated November 12, 1976 (hereinafter collectively referred to as
the "Hayden/Kennec Leases"). In 1981, the Company commenced a rehabilitation
program to extend and rehabilitate the shafts and tunnels in place at the
Franklin Mines, install the Franklin Mill and search for and delineate a body of
minerals. The Company completed the Franklin Mill, which is capable of crushing,
processing and concentrating approximately 150 tons of minerals per 24-hour
period, in 1983.
Operations at the Company's Mining Properties
(1) The Franklin Mining Properties
During fiscal year 1998 and 1999, no exploration activities were conducted at
the Franklin Mine. However, the Company continued its rehabilitation program and
reclamation program in anticipation of commencing operations. Specifically, the
Company continued with its water monitoring programs and commissioned additional
reports and research into claims located on the mining property. The Company has
through fiscal year 1999, and will continue, through fiscal year 2000, to take
steps toward bringing the Franklin Mine and Mill into operation.
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Since its inception, the Company has spent significant monies constructing the
Franklin Mill, rehabilitating the Franklin and Freighters Friend shafts and
underground workings and constructing surface support facilities of the Franklin
Mines. In recent years, the Company has (a) instituted a plan for quarterly
ground water monitoring which includes surface water and ground water sampling
plans, (b) taken steps to correct run-off problems associated with the Tailings
Pond disposal areas currently located on the property, (c) reclaimed the lined
tailings ponds located adjacent to the Franklin Mill, (d) set forth preliminary
plans for the installation of a paste backfill system for tailings disposal and
(e) applied to the Colorado Division of Minerals and Geology, the state
governing authority for mining and milling (the "DMG") for expansion of the
permitted area at the Franklin Mines and Franklin Mill to allow for performance
of certain of the remediation work outlined above. The Company believes that
upon the institution of a paste backfill system, it will have adequate capacity
for tailings disposal should mining operations commence. However, should
additional tailings disposal areas be required, the Company may make application
to the DMG to reopen the lined tailings ponds recently reclaimed. In addition,
the Company has instituted an environmental protection plan containing emergency
response plans for designated chemicals used on site and appropriate measures
consistent with local government agencies to prevent damage to area wildlife
form chemicals, toxic or acid forming materials and/or acid mine drainage. The
Company's plan has been approved by the DMG.
Throughout 1999, inspections of the Franklin Mining properties revealed that
certain reclamation 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 reclamation 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 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. 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
reclamation plan for Tailings Pond No. 5 as well as outlining the temporary
stabilization measures needed to comply with these requirements.
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As recommended by the DMG, the Company requested for 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 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. The Company expects that its application
will be approved in the third quarter of 2000.
The Company has not conducted any commercial mining operations and, as a result,
had not generated any significant revenues through December 31, 1999 from
operations at the Franklin Mine. Therefore, the Company remains in the
exploration stage. The Company, however, is hopeful that an economically viable
commercial mining operation at the Idaho Springs mining facilities can be
conducted in the future if exploration is successful, however, given the current
economic climate, it is unlikely that the Company will commence exploration in
the year 2000. The Companies will continue to work closely with the Federal and
Colorado state mining regulatory agencies as required by law.
(2) Newmineco and the Mogul Mine
On September 26, 1996, the Company acquired a 20% interest in Newmineco from
Gems & Minerals Corp., a former joint venture partner of the Company ("Gems")
for a purchase price of $600,000 evidenced by an interest only note bearing
interest at 9.5% per annum (the "Newmineco Note"). Newmineco was formed for the
purpose of exploiting certain rights to a mining property known as the Mogul
Mine evidenced by a Lease dated March 18, 1996, entered into between Island
lessor/optionor as to the Muscat Lode claim only) as lessor (the "Rugg/Mogul
Lease"). The Rugg/Mogul Lease was contributed to Newmineco prior to the
acquisition by the Company of 20% of the LLC. The Company continues to maintain
its interest in Newmineco but has been informed that the LLC has abandoned its
plan to participate in the exploration of the Mogul Mine and no longer possesses
the leasehold interest evidenced by the Rugg/Mogul Lease.
(3) The Gold Hill Mill
In 1996, the Company acquired the Gold Hill Mill in hopes of increasing its
milling capacity to mill minerals extracted from the Franklin Mines and other
mining properties in the region. However, in 1997, it became clear that the
regulatory climate made it economically unfeasible to bring the Gold Hill Mill
into operation. Recent changes in the laws governing milling and mining in
Boulder County restrict the use of milling facilities located in Boulder County
to processing minerals recovered within the county only. These legal changes
prohibited the Company from using the Gold Hill Mill for processing mineralized
rock from the Franklin Mines.
Therefore, on or about June 5, 1998, the Company sold the Gold Hill Mill to
Denver East Machinery Company ("Denver East") for an aggregate purchase price of
$1,075,000. Payment of the purchase price was made by transferring certain
property and equipment owned by Denver East having a fair market value of
$725,000 a demand note in the aggregate principal amount of $350,000 which was
payable to Denver East by Com, Inc., an affiliate of Gems (the "Denver East
Note"). The Denver East Note is payable and accrues
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interest at a rate of 14% per annum. As of the date hereof, the Company has not
made demand for payment under the terms of the Denver East Note nor does the
Company expect to ever collect on such note due to the Borrowers lack of funds.
Other Ventures
On or about January 11, 1999, US Mining, Inc. ("USM"), a Company wholly owned by
Mr. William C. Martucci, a director of the Company executed a letter of intent
with agents for the Alamosa Mining and Leasing Company, Inc. and the Renegade,
LLC to enter into a joint venture arrangement for the exploitation of the
Shafter Mining Property located in Clear Creek County, Colorado. USM is engaged
in the business of holding and investing in mining properties. To date, USM's
sole business has been providing the Company with financial support and
contracting to acquire 50% of the mineral rights originally leased by the
Company under the Hayden/Kennec Leases. See Item 2 - Property; Item 12 - Certain
Transactions and Related Parties. The letter of intent was assigned to the
Company on January 11, 1999.
After consultation with USM and completion of preliminary due diligence with
respect to the feasibility of commencing mining operations at the Shafter Mining
Property, the Company determined that it was not feasible to pursue this
arrangement and notified the parties of its intent in April 1999.
On January 18, 2000, the Company, Mr. William C. Martucci, a director of the
Company and USM entered into an agreement whereby the Company would acquire USM
in exchange for approximately 85% of the issued and outstanding shares of the
Company on the closing date. See Proposal 1 - The Acquisition.
Water, Utilities and Refining Contracts
The Company has historically purchased power from Public Service Company of
Colorado at its published rates. Moreover, the Company's management believes
that sufficient water for present and future operations may be obtained from the
City of Idaho Springs at its normal rates or from other nearby sources at
reasonable rates. The Company's management does not anticipate any difficulty in
obtaining sufficient water and power sources for its future mining and milling
operations.
In the past, the Company has entered into refining agreements with Zinc
Corporation of America and ASARCO Incorporated for the sale and refining of
lead, zinc and copper concentrates produced from the Franklin Mine in Colorado.
The Company's management expects that at such time as it recommences active
mining and milling operations, the Company will not have difficulties in
renewing or renegotiating contracts with either ASARCO or Zinc Corporation of
America or entering into new contracts with their competitors.
Employees and Technical Consultants
The Company had no full-time employees. The Company's executive officers serve
as needed on a part-time basis for no compensation. However, on or about June 1,
2000 the Company issued 169,750 shares of Common Stock to Richard Brannon, a
Vice President of the Company and 153,690 shares of Common Stock to Joseph
Laura, a consultant of the Company. The shares were issued to Laura as
compensation for services rendered and to Brannon for present and future
services rendered in connection with the Company's mining business. These shares
were registered by the Company on Form S-8 on or about June 6, 2000. With
respect to operations at the Franklin Mines and Franklin Mill, technical
personnel and other qualified consultants and experts are retained on a contract
or consulting basis as needed. Management anticipates that as the
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Company's business develops, additional technical administrative staff may be
hired as well as qualified geological and technical consultants on an as needed
basis.
Item 2. Properties
Glossary of Terms
Assay A chemical evaluation of metal content conducted
after mining ore.
Backfill Mine waste which is disposed of underground in a
formerly mined area.
Chalcopyrite A mineral containing copper, iron and sulphur.
Cyanidation and Pulp Recovery The process by which gold is extracted in the
milling process through the use of cyanide.
Exploration stage Company Companies engaged in the preparation of an
Established commercially mineable deposit or
reserve for its extract which are not in the
production stage.
Dip An angle measured in degrees from the horizon.
Fault A fracture in the earth through which
mineralizing solutions may rise and form a vein.
Fault System A large regional fracture.
Footwall That portion of the vein which is located below.
Galena A mineral containing both lead and sulphur.
Gravity Concentration Minerals concentrated by application of devices
employing the force of gravity.
Hanging wall That portion of the vein which is overhead.
J.L. Emerson Fault A large fracture in the earth' s crust located in
the Franklin Mine area.
Laramide Period A period in history dating back approximately 70
to 90 million years ago.
Main Trunk A highly mineralized portion of the J.L. Emerson
fault located on the properties constituting the
Franklin Mines.
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Massive Sulfides High quality ore.
Microcline gneiss A type of rock found at the Franklin Mine.
Mill The plant facility where the metals constituting
the ore are removed from mined rock.
Mine Workings The areas where minerals are being mined.
Mineral Concentrate A mill product where the rock particles have been
removed from the metallic minerals.
Mineralized Material A mineralized body which has been delineated by
or Deposit appropriate drilling and/or underground sampling
to support sufficient tonnage and average grade
of metals under SEC standards. Such a deposit
does not qualify as a reserve until a
comprehensive evaluation, based upon unit cost,
grade, recovers and other factors, concludes
economic feasibility.
Mineralized Rock Rock which contains the minerals to be mined.
Mineralized Material Rock in which metallic mineralization is present
but may not exist in economic concentration.
Autoclave A smelter devise which oxidizes sulfides at a
high temperature (roasting) leaving gold
contained amendable to Cyanidation.
Monzonite Intrusive rock types containing large Amounts of
quartz and often the progenitor of metallic,
mineralizing solutions.
Ore A metallic or non-metallic mineral that can be
mined from the earth and sold at a profit.
Ore Conduit An opening through which mineralizing solutions
can rise.
Ore Reserves Minerals located in the ground whose existence is
governed by varying degrees of probability.
Ore Shoot A body of ore.
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Orogeny An event causing a major upheaval or reshapement
of the earth's crust, such as volcanism, mountain
building or ore formation.
Paste Backfill Procedure in which backfill is treated
with certain chemicals to solidify the same to
prevent seepage.
Pegatites A type of rock found in the Franklin Mine.
Pillars Unmined sections of ore in a stope.
Pre-Cambrian age A time period in history dating back
approximately 600 million years ago.
Probable (Indicated) Reserves Reserves for which quantity and grade and/or
quality and computed from information similar to
that used for proven reserves, but the site for
inspection, sampling and measurement are farther
apart or are otherwise less adequately spaced.
The degree of assurance, although lower than that
for proven reserves, is high enough to assume
continuity between point of observation.
Production Shaft The device through which mineralized material is
hoisted from the mine and the area through which
materials are lowered into the mine and miners
enter and exit the mine.
Proven (Measured) Reserves Reserves for which (a) quantity is computed from
dimensions revealed in outcrops, trenches,
workings or drill holes; grade quality are
computed from the results of detailed sampling
and (b) the sites for inspection, sampling and
measurement are spaced so closely and the
geologic character is so well defined that size,
shape, depth and mineral content of reserves are
well established.
Pyrite A mineral containing both zinc and sulphur.
Raise A tunnel driven upward from a level.
Refractory A difficulty in separating value metals or
minerals from the host rock.
Reserves A reserve is that part of a mineral deposit which
could be economically and legally extracted or
produced at the time of the reserve
determination.
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Schist, granite gneiss A type of rock found in the Franklin Mine.
Selective Flotation Minerals concentrated in a selected mineral group
in the mill.
Shaft A vertical tube-like opening whereby miners enter
the mine.
Slurry A mixture of ground rock or minerals in water.
Slimes Exceedingly fine particles mixed with water.
Sphalerite A mineral containing both zinc and sulphur.
Strike In a horizontal direction.
Stope The area of the mine where miners extract mineral
deposits from the mine.
Tailings Waste which is produced by the Mill.
Tailings Pond The location where mill wastes are deposited.
Telluride A mineral containing tellurium often found with
quantities of gold and/or silver and sulphur.
Tennentite A complex mineral containing copper, antimony or
arsenic, often containing large amounts of
silver.
Tertiary Period A time period in history dating back
approximately 40 to 70 million years ago.
Vein A fracture in the earth's crust where minerals
have been deposited.
Winze A tunnel driven downward from a level.
Colorado Mining Properties
The property which constitutes the Franklin Mines consists of (i) leasehold
interests in the mineral rights to 28 claims comprising approximately 322 acres
evidenced by the Hayden/Kennec Leases and (ii) an additional 23 claims leased
and/or purchased by the Company covering less than 100% of the mineral rights
comprising approximately 20 additional acres, for a total of 51 claims over 340
acres. The Franklin
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properties include all improvements made by the Company thereon, including the
Franklin Mill capable of supporting up to a 150 ton per day operation in its
present state. The Company was also required to pay taxes and certain other
expenses relating to the properties leased. Except with respect to the property
leased under the Hayden /Kennec Leases, the Company does not intend to exploit
any claims for which it holds less than a 100% interest. Management believes
that it currently maintains adequate insurance for all of its mining properties.
Hayden/Kennec Leases
Under the original terms of the Hayden/Kennec Leases which expired in November
1996, the Company was required to pay an aggregate minimum royalty payment of
$2000 or 5% of the net smelter royalties realized by the Company to Mrs. Hayden
and Mrs. Kennec. The Company was also required to pay all other amounts with
respect to the property including any tax liabilities. The Hayden/Kennec Leases
also contained an option to purchase the leased mineral rights for a purchase
price of $1,250,000 less all royalty payments made during the term of the lease.
As of the expiration date, the Company had paid $480,000 in royalties, which
would have set the option price at $770,000.
In November 1996, the Company was granted a one-year extension of the
Hayden/Kennec Leases under the same terms and conditions. On November 13, 1997,
just prior to the expiration of the Hayden/Kennec leases, USM entered into an
Agreement with Mrs. Hayden to purchase her 50% interest (the "Hayden Interest")
in the mineral rights (the "Purchase Agreement"). Mrs. Hayden had previously
contracted to sell her interest to Gems & Minerals Corp., the Company: a former
joint venture partner, however, Gems was unable to consummate the purchase in
accordance with the terms of their Agreement.
In late 1997, the Company had been in discussions with Martucci to effectuate a
business combination with certain of his entities. See Item 12 - Certain
Relationships and Certain Transaction. During these discussions, the Company
explained to Martucci the situation regarding the Hayden/Kennec leases and the
importance of maintaining an interest in the mineral rights as they represent
over 50% of the mineral claims available to the Company for exploration and
development. It was then agreed that USM would negotiate with Mrs. Hayden to
acquire her interest.
Pursuant to the Purchase Agreement, Mrs. Hayden agreed to sell to USM the Hayden
Interest for $75,000, which would be evidenced by a note issued to Hayden by USM
at the consummation of the sale. The Purchase Agreement also contained a
provision which extended the Hayden/Kennec Leases with respect to the Hayden
Interest until March 13, 1998 and which required USM to continue to pay the
royalty payments of $1,000 per month required thereunder until the sale was
consummated. As of the date hereof, USM has not consummated the purchase of the
Hayden Interests; however, the terms of the Purchase Agreement remain in effect
and Mrs. Hayden has agreed to further extend the Hayden/Kennec Leases with
respect to the Hayden Interest through December 31, 2000. The Company has also
been advised by USM that all royalty payments have been paid and will continue
to be paid until the sale is consummated or the Purchase Agreement is
terminated. Since November 1997, USM has paid royalty payments to Mrs. Hayden of
approximately $25,000 through December 31, 1999.
With respect to the 50% interest currently owned by Mrs. Kennec (the "Kennec
Interest"), upon the expiration of the Hayden/Kennec Leases, the Company entered
into an extension Agreement with Mrs. Kennec to extend the Hayden/Kennec Leases
as they pertain to the Kennec Interest until March 12, 1998. No further
extensions have been granted and there can be no assurance that the Company will
reach any further Agreement with Mrs. Kennec regarding the Kennec Interest.
While there can be no guarantee that the
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Company's failure to come to Agreement with Mrs. Kennec regarding her interest
will not have an adverse impact on the Company's ability to exploit the mineral
rights evidenced by the Hayden/Kennec Leases, Gems had received an opinion of
counsel from Freeborn & Peters, that Colorado Law would permit the exploitation
of the mineral rights so long as the non-participating owner (Mrs. Kennec) is
paid whatever net profits are owed to her upon commencement of operations. Since
USM is in a position to purchase the Hayden Interest and the Company has
continued to acquire USM, the Company is hopeful that its inability to come to
an Agreement with Mrs. Kennec with respect to the Kennec Interest will not
preclude the Company from commencing mining operations.
Location and Access
The Franklin Mines and Franklin Mill are located in Clear Creek County, Colorado
approximately 2.7 miles north of the town of Idaho Springs, which is accessible
from Interstate 70 approximately 33 miles west of Denver. From Idaho Springs, a
county maintained gravel road connecting Idaho Springs with Central City in
Gilpin County passes within 1/4 of a mile of the Franklin Mine facilities and
offices. A minor roadway, also maintained by the County, allows access to the
Franklin Mine within 1/8 of a mile. The mine location is accessible year round,
except in the case of a major snowstorm in winter months.
Ore Deposition in the Area
Most of the minerals deposition in the area where the Franklin Mine is located
has been credited to the period of the Laramide Orogeny. Minerals extracted from
the region included gold, silver, copper, lead, zinc, and uranium. By far the
largest single metal values were in gold, with silver being a distant second.
Though many of the smaller veins located in the area pinched out at moderate
depth, some have shown strong mineralization at greater depths.
The minerals deposits are of four types: (i) pyritic gold minerals; (ii)
galena-sphalerite minerals; (iii) composite (pyrite-galena-sphalerite) minerals
and (iv) telluride minerals. Pyritic gold minerals are chiefly associated with
pyrite, chalcopyrite, and tennentite. The "composite minerals" are believed to
be the result of two or more periods of mineralization, with pyritic minerals
first and galena-sphalerite second; mineral content varies widely with the
relative percentage of the different types of ore present. Telluride minerals
are present mostly in the Northeast corner of the district, but some telluride
minerals have been noted elsewhere.
The Idaho Springs and Central City Mining District
Both the Idaho Springs and Central Mining Districts were discovered around 1860
and by 1900 were old mining districts. It has been estimated that these areas
combined to produce in excess of five million ounces of gold and substantial
amounts of silver, copper, lead and zinc during this period. Mining ceased in
both districts around 1920. However, the United States Geological Survey
indicates that the base of the mineralization has not been found in either of
these mining districts.
This means that the mineralization in the veins found throughout this region may
continue to great depth and with modern mining techniques, stainless steel water
pumps and better mining engineering it is possible that may of the mines that
helped produce the five million ounces of gold in the last century can
economically be opened and ore mined to greater depths.
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There are at least four other mining properties being sought in the Idaho
Springs, Central City mining district that may be available for purchase, joint
venture or lease. The Company has been advised that two of these properties are
located within three miles of the Franklin Mining properties.
Currently, however, there is only one active mine in this area. The Company
believes there is development potential in the Idaho Springs Central City mining
district that may, if exploration is successful be a source of ore for the
Franklin Mill. The Company is hopeful that nearby properties can be obtained
and, combined with the Franklin Mines and, if exploration of these properties is
successful and ore proven to exist, such mineralized material be processed at
the Franklin Mill.
Geology of the Franklin Mines
The rocks most commonly seen in the Franklin Mines are Pre-Cambrian age granite
and microcline gneiss. Tertiary Period, monzonite, the most common of which is
quartz monzonite, can be seen on the ninth level and are reported from lower
levels in the Gem vein or Gem workings of the Franklin Mines. The general strike
of the system is N75 degrees W with dips varying from 45(0) to 79(0).
The structure of the mines is controlled by the J.L. Emerson Fault system that
runs in a west-northwest direction across the whole property and beyond.
Secondary to the J.L. Emerson Fault are multitudes of small fissure veins that
are parasitic to the main break. Some of these veins contribute to considerable
mineralization where they intersect the J.L. Emerson Fault structure. These
mineral bodies are observable in several locations in the Franklin 73 mine and
the Gem mine, one measuring 22 feet wide and 60 feet in length. It has been
reliably reported that some of the large stopes mined in the Gems workings
measured up to 105 feet in width.
Estimated Reserves of Mineralized Material
Mineralization of the Franklin Mine and associated Gem, the Freighter mines is
that generally associated with the "Main Trunk" of the J.L. Emerson Fault. No
reference is being made regarding the mineral potential of structures situated
adjacent to, or off the "Main Trunk".
Sampling by the channel sample method was conducted during the period of 1975
through 1993 with assaying provided by the Franklin and other accredited assay
laboratories. Assays were also obtained from the old Gem Mining Co. mine assay
map, dated 1921 (the "Gems Assay Map"). The sampling process was carried out at
right angles to the strike of the veins. Blocks were sampled on three or four
sides and at times within by raise or winze. Those blocks, which were
extensively mined, were entered where possible through open stopes with both
pillars and "backfill" being sampled.
The Franklin mineral structure is generally a tabular structure in shape and
consisting of several parallel to sub-parallel veins, striking in a westerly
direction and dipping at 45(0) to 79(0) north. Its depth is unknown.
The J.L. Emerson Fault is a large regional structure, striking east to west and
having an irregular plain that dips to the north at 45 to 79 degrees. The J.L.
Emerson Fault is associated throughout with a series of parallel to sub-parallel
sigmoidal shaped fractures that may focus east or west on the principal fault
plain. These fracture patterns are found on nearly all levels and represent
important Parallel mineralized fault fractures, the so-called "footwall" and
"hanging wall" veins. Each of the principal veins has historically contributed
to production in the Gem vein. A second set of true fissure veins of a later
date and striking
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<PAGE>
northeast and southwest interdict the J.L. Emerson Fault at several points, but
does not cross. These veins are of unknown economic potential.
The mineral structures in the Franklin Mines are often large, but poorly
defined. It was suggested that a core-drilling program be conducted at promising
locations to determine mineralized zones therein.
There is no assurance that reserves exist in the Franklin Mine system. A
core-drilling program and a comprehensive economic evaluation will be required
to determine economic feasibility.
Operations
During the years 1998 and 1999, the Company continued reclamation and
rehabilitation of its properties in Idaho Springs in the anticipation of more
detailed evaluations of its resource. The Company also continued to seek custom
milling business from small operators in the general area. The Company's initial
plan is to core drill an area located on the 5 level of the Freighters Friend
Shaft where mineralized material is believed to exist. Management believes that
an initial capital requirement for core drilling is approximately $500,000. To
bring the mill into operating condition is believed to require $750,000.
USM has verbally pledged to continue to provide financing to the Company on an
as needed basis through December 31, 2000: this financing is in addition to the
USM Advances made in 1998 and 1999. Other alternatives such as private
placements, loans, or public offerings may be considered for future operating
capital.
It is important to be aware that mining is a regulated business and compliance
with regulatory requirements of the various agencies having jurisdiction over
the Company's activities can cause delays in the schedules set by the Company
for the installation of its facilities and performance of its reclamation and
remediation work. Moreover, regulatory requirements may require capital outlays
in excess of those anticipated; thus adversely affecting the scope and timing of
planned operations.
Mill/Metallurgy
The Franklin Mill was designed to recover and concentrate metallic minerals by
two methods; selective flotation and, gravity by table and jig. Both systems
have been operated in a continuous circuit. After a series of upgrades in 1982,
the Franklin Mill has a processing capacity (operating for a 24 hour period) of
approximately 150 tons. In the past, the Franklin Mill operated on an eight-hour
schedule and processed approximately 30 tons of minerals during that time
interval.
The Franklin minerals are refractory and therefore difficult to separate. Pyrite
(iron sulfide) constitutes approximately 23% of the weight of the minerals.
Approximately 35% of the gold content of the minerals remains locked in the
pyrite as refractory gold and is not recoverable by ordinary means.
Standard milling procedures are considered for any possible future operations:
selective flotation of a) lead, silver, gold and b) zinc and c) gravity
concentration of gold bearing pyrite. Gold bearing pyrite (refractory gold)
concentrates would be shipped to a copper smelter or to an autoclave Lead and
silver and free gold would go to lead smelter, zinc to a zinc smelter.
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<PAGE>
In the past, the Franklin Mill operated on a limited schedule while exploration
and development was taking place. While the Franklin Mill has not operated with
respect to the milling of minerals, limited-crushing activities took place in
early 1996 for the purpose of preparing bulk mineral samples for assay.
Offices of the Company
The Company maintains its executive offices, consisting of approximately 500
square feet, at 76 Beaver Street, Suite 500, New York, New York. The Company
pays a monthly rental of $3,500 (on a month to month basis) for the office
space, secretarial and other services provided to the Company pursuant to an
oral Agreement with a non-affiliate. The Company also maintains an office on
site at the Franklin mine in Idaho Springs.
The Company's management anticipates this space will service the Company's needs
for the foreseeable future and that, in the event such space should become
unavailable in the future, the Company will be able to lease other suitable
facilities on a reasonable basis.
Item 3. Legal Proceedings
The Company, from time to time, may become involved in various legal actions
associated with the normal conduct of its business operations. No such actions,
other than those set forth below, involve known material gain or loss
contingencies not reflected in the Company's financial statements.
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.
In September, 1997, certain of the Company's 12 1/4% Convertible Debenture
holders, including the Hopis Trust (the "Plaintiff Debentureholders") instituted
an action in the Supreme Court of the State of New York against the Company for
payment on approximately $42,500 principal amount of Debentures plus accrued and
unpaid interest totaling approximately $13,000 and other costs and expenses
related thereto.
Thereafter, the Plaintiff Debentureholders moved for summary judgment against
the Company. The Company did not to oppose the motion and default was entered
against the Company in the amount of $42,500 plus interest, costs and
disbursements (the "Default"). Moreover, the issue of attorney's fees was
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
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<PAGE>
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.
Golder Litigation
On or about February 5, 1996, Bradley, Campbell, Carney & Madsen, P.C., Colorado
counsel to the Company, Gems, Zeus and Newmineco ("BCCM") entered into a
contract with Golder Associates, "Mogul Tunnel Contract"). At the time of the
Mogul Tunnel Contract, BCCM allegedly entered into said contract as an agent of
Durango, the lessee of the Mogul Mine at that time.
On or about February 5, 1996, BCCM entered into a second contract with Golder,
pursuant to which Golder agreed to perform certain services at the Franklin
Mines and Franklin Mill pertaining to various environmental issues (the
"Franklin Mines Contract").
At the time of the Franklin Mines Contract, BCCM allegedly entered into said
contract as an agent of the Zeus Joint Venture.
On or about August 23, 1996, Gems executed a note to Golder in the aggregate
principal amount of $268,683.75 and a note to BCCM in the aggregate principal
amount of $109,785.35 to secure legal and engineering fees outstanding as of
such date. Each note was due and payable on or before December 23, 1996 and was
secured by a pledge of approximately 144,000 as adjusted shares of Common Stock
of the Company owned by Gems. Gems failed to make the required payments on the
note by December 23, 1996.
On or about January 28, 1997, Golder commenced an action against BCCM, Zeus, the
Company, Gems, Island, and Durango in the United States District Court of the
District of Colorado to recover sums due and owing from the Defendants for
breach of contract, breach of implied warranty, misrepresentation, negligent
misrepresentation, default under the Golder note and quantum merit arising out
of each of the Mogul Tunnel Contract and the Franklin Mine Contract. The Company
is a named defendant to this litigation by virtue of its participation in the
Zeus joint venture, it being joint and severally liable with Gems and Nuco as
general partners in the Joint Venture.
-16-
<PAGE>
The aggregate amount of the Golder claims are approximately $281,670.99 plus
prejudgment and post judgment interest, costs and expenses (including attorney's
fees) and any additional relief granted by the court, $124,159.87, exclusive of
interest and other costs and expenses, of which is attributable to the Mogul
Tunnel Contract and $157,511.12, exclusive of interest and other costs and
expenses, of which is attributable to the Franklin Mines Contract.
The parties settled this matter in September 1999 and the litigation was
discontinued, at no cost to the Company.
Environmental Matters
As of the date hereof, the Company has no formal violations against it with
respect to the Franklin Mines and Franklin Mill. While there are no outstanding
violations against the Company at this time, there can be no assurance that the
Company will be able to adequately comply with the conditions set forth in its
permit approval or that future violations will not arise and that such
violations will not lead to interruptions in operations at the Franklin Mines or
Franklin Mill.
NASDAQ Delisting
In 1996, the Commission approved certain amendments to the requirements for
continued listing on the NASDAQ Small-Cap Market. On February 27, 1998, the
Company received a notification letter from NASDAQ informing the Company that
the Company's Common Stock was not in compliance with the new minimum bid price
requirement of $1.00, which became effective on February 23, 1998.
The Company was given until May 28, 1998 to come into compliance or it would
face delisting proceedings. On or about May 21, 1998, the Company effectuated a
25 for 1 reverse stock split which, when consummated, caused it stock price to
rise above the $1.00 threshold. Therefore, the Company was not subject to
delisting proceedings and remained in compliance until November 1998.
On or about November 10, 1998, the Company received notification from NASDAQ
that it was not in compliance with the minimum bid price requirement and had
until February 10, 1999 to come into compliance. During the month of January,
the Company's stock price maintained a bid price above $1.00 for 10 consecutive
days, thereby bringing it into compliance with NASDAQ rules.
On or about June 9, 1999, the Company received notification from NASDAQ that it
was not in compliance with the minimum bid price requirement and had until
September 9, 1999 to come into compliance.
During the middle and latter part of June, the Company's stock price maintained
a bid price above $1.00 for ten consecutive days but subsequently dropped below
$1.00. On September 17, 1999 NASDAQ notified the Company that it would delist
the Company's Common Stock from the NASDAQ SmallCap Market on September 24,
1999. The Company appealed this decision before a NASDAQ Listing Qualifications
Panel whereby the panel required the Company to effectuate a reverse stock split
of three-for-one as a condition for continued listing. The Company complied with
the condition on or about December 17, 1999. On January 11, 2000 NASDAQ informed
the Company that the Company's stock was now in compliance with the requirements
for continued listing and that the stock would continue to be listed.
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<PAGE>
While the Company is currently in compliance with the minimum bid price
requirement, there can be no assurance that in the future the company's common
stock will, in the future be able to maintain such compliance. In the event that
the Company cannot maintain compliance with the maximum bid price requirement
the Company, may, in the future, be subject to delisting causing the Company's
common stock to no longer be listed for trading on the NASDAQ Small Cap Market.
However in such event, Management is hopeful that the Company's Common Stock
will qualify for trading on the Over-The-Counter/Bulletin Board ("OTC") market
and the Company will make every effort to include its Common Stock on the OTC in
the event of a delisting by NASDAQ.
In the event that the Company's Common Stock is traded on the OTC, it may become
subject to the "penny stock" trading rules. The penny stock trading rules impose
additional duties and a responsibility upon broker-dealers recommends the
purchase of a penny stock (by a purchaser that is not an accredited investor as
defined by Rule 501(a) promulgated by the Commission under the Securities Act)
or the sale of a penny stock. Among such duties and responsibilities, with
respect to a purchaser who has not previously had an established account with
the broker-dealer, the broker-dealer is required to (i) obtain information
concerning the purchaser's financial situation, investment experience, and
investment objectives, (ii) make a reasonable determination that transactions in
the penny stock are suitable for the purchaser and the purchaser (or his
independent adviser in such transactions) has sufficient knowledge and
experience in financial matters and may be reasonably capable of evaluating the
risks of such transactions, followed by receipt of a manually signed written
statement which sets forth the basis for such determination and which informs
the purchaser that it's unlawful to effectuate a transaction in the penny stock
without first obtaining a written agreement to the transaction. Furthermore,
until the purchaser becomes an established customer (i.e., having had an account
with the dealer for at least one year or, the dealer had effected three sales or
more of penny stocks on three or more different days involving three or more
different issuers), the broker-dealer must obtain from the purchaser a written
agreement to purchase the penny stock which sets forth the identity and number
of shares of units of the security to be purchased prior to confirmation of the
purchase. A dealer is obligated to provide certain information disclosures to
the purchaser of penny stock, including (i) a generic risk disclosure document
which is required to be delivered to the purchaser before the initial
transaction in a penny stock, (ii) a transaction-related disclosure prior to
effecting a transaction in the penny stock (i.e., confirmation of the
transaction) containing bid and asked information related to the penny stock and
the dealer's and salesperson's compensation (i.e., commissions, commission
equivalents, markups and markdowns) connection with the transaction, and (iii)
the purchaser-customer must be furnished account statements, generally on a
monthly basis, which include prescribed information relating to market and price
information concerning the penny stocks held in the customer's account. The
penny stock trading rules do not apply to those transactions in which the
broker-dealer or salesperson does not make any purchase or sale recommendation
to the purchaser or seller of the penny stock.
Required compliance with the penny stock trading rules affect or will affect the
ability to resell the Common Stock by a holder principally because of the
additional duties and responsibilities imposed upon the broker-dealers and
salespersons recommending and effecting sale and purchase transactions in such
securities. In addition, many broker-dealers will not effect transactions in
penny stocks, except on an unsolicited basis, in order to avoid compliance with
the penny stock trading rules. The penny stock trading rules consequently may
materially limit or restrict the liquidity typically associated with other
publicly traded equity securities. In this connection, the holder of Common
Stock may be unable to obtain on resale the quoted bid price because a dealer or
group of dealers may control the market in such securities and may set prices
that are not based on competitive forces.
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<PAGE>
Furthermore, at times there may be a lack of bid quotes which may mean that the
market among dealers is not active, in which case a holder of Common Stock may
be unable to sell such securities. Because market quotations in the
over-the-counter market are often subjected to negotiation among dealers and
often differ from the price at which transactions in securities are effected,
the bid and asked quotations of the Common Stock may not be reliable.
Redstone Litigation
On or about May 14, 1998, Redstone Securities Inc. ("Redstone") commenced an
action against the Company in the Supreme Court of the State of New York, County
of Nassau, Index No. 98-013668, claiming, among other things, breach of
contract, fraudulent inducement, and unjust enrichment in connection with an
Investment Banking Agreement dated August 28, 1996, between Redstone and the
Company. The complaint requests relief in the amounts of not less than $600,000
plus punitive damages, costs, interest and other expenses. On or about July 31,
1998, the Company answered the complaint and filed a cross complaint against
Redstone alleging, among other things, abuse of process, fraud, breach of
fiduciary duty, breach of contract and interference with prospective financial
advantage. In September 1999, the matter was settled whereby the Company agreed
to lift the stop transfer order on the shares held by Redstone to allow Redstone
the ability to sell those shares to Mr. Joseph Martelli an unaffiliated third
party.
Item 4. Submission of Matters to a Vote of Security Holders
On May 21, 1998, the Company held a special meeting of stockholders to consider
a proposal to amend the Company's Certificate of Incorporation to reverse split
the Company's outstanding shares of common stock on a twenty-five for one basis.
Of the 3,955,173 shares entitled to vote at the meeting, and before giving
effect to the three-for-one reverse split in December 1999, 2,458,623 were
presented either in person or by proxy constituting a quorum for purposes of
conducting the business that was brought before the meeting. The Amended
Certificate of Incorporation we filed with the Secretary of State of Delaware on
October 16, 1998.
On October 12, 1998, the Company held its annual meeting of shareholders in New
Jersey at which time the shareholders (i) re-elected Mr. Waligunda and elected
William C. Martucci, Ronald Ginsberg and Robert W. Singer to the Board of
Directors of the Company (ii) approved an amendment to the Certificate of
Incorporation to change the name of the Company to "WCM Capital, Inc." and (iii)
confirmed Lazar, Levine & Felix as independent auditors of the Company.
Of the 3,955,169 shares entitled to vote at the meeting, 2,458,623 were present
either in person or by proxy constituting a quorum for purposes of conducting
the business that was brought before the meeting. The following table sets forth
the matters brought before the shareholders, the number of votes cast for,
against or withheld, as well as the number of abstentions and broker non-votes,
if any, for each matter.
<TABLE>
<CAPTION>
Matter For Against Abstain
------ --- ------- -------
<S> <C> <C> <C>
Election of William C. Martucci As a Director 2,411,706 46,917 ----------
Election of Robert Waligunda as Director 2,443,750 14,873 ----------
Election of Ronald Ginsberg as a Director 2,411,718 46,905 ----------
Election of Robert W. Singer as a Director 2,411,714 16,476 ----------
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C>
Amendment to Certificate
Of Incorporation for
Name change 2,434,302 16,476 7,845
Confirmation of
Independent Auditors 2,427,679 21,743 9,201
</TABLE>
The Amended and Restated Certificate of Incorporation was filed with the
Secretary of State of the State of Delaware on October 16, 1998.
On November 15, 1999, the Company held its annual meeting of shareholders in
Springfield, New Jersey at which time the shareholders (i) re-elected Messrs.
Waligunda and Martucci, and elected William H. Wishinsky, Casey Myhre and John
Bruno to the Board of Directors of the Company and (ii) confirmed Lazar, Levine
& Felix as independent auditors of the Company.
Of the 3,991,107 shares entitled to vote at the meeting, 3,016,123 were present
either in person or by proxy constituting a quorum for purposes of conducting
the business that was brought before the meeting. The following table sets forth
the matters brought before the shareholders, the number of votes cast for,
against or withheld, as well as the number of abstentions and broker non-votes,
if any, for each matter.
<TABLE>
<CAPTION>
Matter For Against Abstain
------ --- ------- -------
<S> <C> <C> <C>
Election of William C. Martucci 2,969,910 46,213 ----------
As a Director
Election of Robert Waligunda as Director 2,969,910 46,213 ----------
Election of William 2,968,370 47,753 ----------
Wishinsky as a Director
Election of Casey 2,968,370 47,753 ----------
Myhre as a Director
Election of John 2,968,342 47,781 ----------
Bruno as a Director
Confirmation of
Independent Auditors 2,962,757 42,205 11,161
</TABLE>
On December 13, 1999, the Company held a special meeting of stockholders to
consider a proposal to amend the Company's Certificate of Incorporation to
reverse split the Company's outstanding shares of common stock on a
three-for-one basis and to reduce the authorized capital of the Company from
100,000,000 to 40,000,000. Of the 3,991,107 shares entitled to vote at the
meeting, 3,016,123 were presented either in person or by proxy constituting a
quorum for purposes of conducting the business that was brought before the
meeting. The amended Certificate of Incorporation was filed with the Secretary
of State of the State of Delaware on December 17, 1999.
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<PAGE>
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The principal U.S. market on which shares of the Company Common Stock (all of
which are of one class, $.01 per share) are traded on the small cap market on
the National Association of Securities Dealers, Inc. Automated Quotation System
(Symbol "WCMC"). For Information regarding possible delisting of the Company's
Common Stock. See Item 3. Litigation NASDAQ Delisting.
The following table sets forth the range of high and low bid quotes of the
Company's Common Stock per quarter since the beginning of fiscal year 1997 as
reported by the National Quotation Bureau (which reflects inter-dealer prices
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions). The following stock prices have been adjusted to
reflect a one for twenty-five reverse stock split which occurred on May 26,
1998; but has not been adjusted to reflect a one-for-three reverse stock split
effected on December 13, 1999 except as noted.
High Low
Quarter Ended Bid Price Bid Price
March 31, 1997 $5.50 $4.00
June 30, 1997 $4.75 $4.00
September 30, 1997 $5.50 $4.00
December 31, 1997 $2.34375 $1.5625
March 31, 1998 $1.5625 $1.5625
June 30, 1998 $2.25 $1.5625
September 30, 1998 $1.50 $1.00
December 31, 1998 $0.875 $0.4375
March 31, 1999 $1.125 $1.06
June 30, 1999 $1.50 $0.4375
September 30, 1999 $1.00 $0.9375
December 31, 1999 $2.50 $1.00*
---------------
* Takes into account one for three reverse split effective December 20, 1999
As of December 31, 1999, the approximate number of recordholders of the
Company's Common Stock is 2,749 inclusive of those brokerage firms and/or
clearinghouses holding the Company's Common Shares in street name for their
clientele (with each such brokerage house and/or clearing house being considered
as one holder). The aggregate number of shares of Common Stock issued and
outstanding is 1,318,767 as of March 15, 2000. No dividends on Common Shares
have ever been paid by the Company due to the lack of excess capital and the
Company does not anticipate that dividends will be paid in the foreseeable
future. In addition, pursuant to the terms of the Company's 12-1/4% Convertible
Debentures, the Company, the Company is prohibited from paying dividends on its
Common Stock unless and until it is no longer in default under the debentures.
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<PAGE>
Sales of Restricted Securities
In consideration of the extension of the Kennec portion of the Hayden Kennec
Leases, the Company issued to Dorothy Kennec, 1,387 (as adjusted) shares of the
Company Common Stock in April 1997. The stock was valued at $9.375 per share as
adjusted having an aggregate value at the time of the extension agreement of
$13,000. The common stock issued to Mrs. Kennec was issued as further
consideration for the extension of the terms of the Hayden/Kennec Lease. The
Company issued the common stock in reliance upon the exemption contained in
Section 4(2) of the Act. Mrs. Kennec is the 50% owner of the certain of the
properties comprising the Franklin Mines that the Company has leased for over 20
years. No offering of common stock was made to any persons other to Mrs. Kennec.
As a result of her relationship to the Company, Mrs. Kennec had access to all
information regarding the Company, including all documents, public records,
books, and accounts of the Company and was able to ask questions of and receive
answers from representatives of the Company regarding the same. Mrs. Kennec
understood the risk inherent in an investment in the Company, was acquiring the
stock for her own account, not with a view of distribution thereof, and
thoroughly understood and was willing to bear all the risks related to ownership
of the Company's securities.
On September 26, 1996, the Company acquired a 20% interest in Newmineco from
Gems for a purchase price of $600,000 evidenced by an interest only note bearing
interest at 9.5% per annum. On February 10, 1997, the Company made its election
to convert the amounts owing on the Newmineco Note into Common Stock of the
Company at a conversion price of $5.85 per share (after giving effect to
adjustment to the price of the stock subsequently made as a result of reverse
stock split). The Company issued to such holders an aggregate of 102,564 (as
adjusted) shares of Common Stock of the Company in full satisfaction of the
Company's obligations under the Newmineco Note. The shares were issued in
accordance with an exemption from registration afforded by Section 4(2) under
the Act.
Item 6. Management's Discussion and Analysis or Plan of Operation
CAUTIONARY STATEMENT ON FORWARD LOOKING STATEMENTS
Except for the historical information contained herein, Management believes that
certain of the matters discussed in this Annual Report for the year ended
December 31, 1999 are "forward looking risks and uncertainties which cause
actual results to differ materially from those discussed herein including, but
not limited, risks relating to changing economic conditions, change in price of
disclosed in this Annual Report. The Company cautions readers that any such
forward-looking statements are based upon management's current expectations and
beliefs but are not guaranties of future performance. Actual results could
differ materially from those expressed or implied in forward-looking statements.
The Company is engaged in the business of investing and participating in the
development of commercial mining and milling operations primarily at leased
properties in or near Idaho Springs, Colorado.
During 1998 and 1999, remediation work was performed and completed at the
Franklin Mines and the Franklin Mill in preparation for the commencement of
mining operations at the Franklin Mines.
The Company has not commenced commercial operations at the Franklin Mine since
its inception. Therefore, the Company remains in the exploration stage and has
not generated significant revenues on a
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<PAGE>
sustained basis since its inception. The Company did not realize any revenues
based on sales in 1999 and 1998. Since the abandonment of its participation in
Newmineco, the Company will no longer recognize income or losses based on its
proportionate equity interest in these entities. The Company is entitled to
receive 100% of the potential income generated from the Franklin Mines, if any,
once production is commenced less any royalty payments due to Mrs. Kennec with
respect to the mineral rights owned by her.
Liquidity and Capital Resources
Since its inception, the Company has financed its operations principally through
equity and debt and monies provided through its relationship with USM during
1998 and 1999. The Company has derived no income from its mining and milling
investments, which, as of December 31, 1999, were comprised of investments in
the assets and rights related to the Franklin Mines and Mill. As of December 31,
1999, the Company had borrowed $1,470,295 from USM.
The Company had total current liabilities as of December 31, 1999 of $2,553,200,
including $1,470,295 constituting the principal balance of the USM Note,
convertible debentures with a principal amount of $145,000 and other notes
payable with a principal balance of $218,965. In addition to the payment of its
current liabilities, the Company incurred general, administrative and other
costs and expenditures related to any mining and milling operations, at the rate
of approximately $25,000 per month in 1999 and expect to incur additional
administrative expenses of approximately $20,000 per month plus interest in
2000.
During 1999 and 1998, USM advanced approximately $278,000 and $237,000,
respectively, on behalf of the Company. These monies were used to, among other
things, pay for legal and accounting fees in connection with public filings and
necessary general and administrative expenses. USM has continued to fund the
Company directly or indirectly since 1997. USM has verbally pledged to provide
financing to the Company on an as needed basis through December 31, 2000. The
Company believes based on prior performance and the acquisition Agreement
entered into in January 2000 that USM will fulfill its commitment to fund until
December 31, 2000. It is anticipated that the funds received from USM will cover
the general, administrative and other costs, which Management estimates will be
approximately $20,000 per month for the year 2000. Management cannot assure
however, that USM will provide $750,000 of funding which Management estimates
will be needed to ready the Franklin Mine and Milling properties for the
commencement of extraction and milling. Additional funding will be needed to
ready the properties for operations and to support operations once mining and
milling commence to finance operations as well as upgrade the processing
facilities to allow for an increase in processing capacity.
The Hayden/Kennec Leases cover mineral rights to 28 mining claims over 322 acres
of the Franklin Mining properties. Currently, the Hayden/Kennec Leases are
expired; however, the terms of the Purchase Agreement between USM and Hayden
extend the terms of the Hayden/Kennec Leases as they relate to the Hayden
interests upon the same terms and conditions of the Hayden/Kennec Leases.
Therefore, USM has advanced, and is continuing to advance, $1,000 royalty
payment to Mrs. Hayden on a monthly basis as required by the Hayden/Kennec
Leases. As of the date hereof, the Company has not reached any Agreement with
Mrs. Kennec concerning her portion of the Leasehold.
Under the terms of the Hayden/Kennec Leases, the Company would have been
required to pay $777,000 to Mrs. Hayden and Mrs. Kennec in order to exercise the
purchase options set forth therein as of November, 1997 when the lease expired.
Presently, the Company is unable to make such payment; notwithstanding,
-23-
<PAGE>
Management is optimistic that it will maintain its access to the leased mineral
rights represented by the Hayden/Kennec Leases given the Purchase Agreement
between Mrs. Hayden and USM. USM has advised the Company that it is current with
its payments to Mrs. Hayden and the Company, based upon the prior commitments
and past payment history of USM, believes that USM will continue to make the
necessary royalty payments to Mrs. Hayden until the purchase of Mrs. Hayden's
leasehold interest is consummated.
In the absence of liquid resources, cash flows from operations and any other
commitments for debt or equity financing, management believes that the ability
of the Company to continue to maintain its permit and properties will be
dependent upon the provision of financing by USM; however, it cannot assure that
USM will continue to finance the Company through December 2000. Management
believes that the Company will remain dependent on USM as its primary source of
financing for its operations until such time, if any, as the Company can secure
additional funding and can receive cash flows from operations.
Management believes that it has obtained all of the necessary environmental and
regulatory Permits recently applied for.
The Company has conducted no exploration activities during the first quarter of
2000; however, the Company continued its efforts to bring the site into
compliance with groundwater regulations and stabilization of tailings ponds.
During the first quarter 2000 the DMG requested that the Franklin Mining
operation be placed on temporary suspension due to its lengthy period of
dormancy (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). The Company responded
immediately and filed the necessary application for Temporary Secession. (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). The
department has been in contact with the Company and a temporary suspension
status is expected to be granted shortly. This status will allow the Company to
retain all its permits. However, given the current economic climate and lack of
reserves, it is unlikely that the Company will commence any 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
its Idaho Springs Mining properties and interest, at the rate of approximately
$20,000 per month for the remainder of 2000.
U.S. Mining Co. 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 plus interest.
Additional monies will be needed for exploration of the Franklin Mine and
mineral properties.
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.
-24-
<PAGE>
Plan of Operations
The Company has completed most of the actions required by the DMG and, for the
remainder of fiscal 2000, the Company plans to (i) continue its rehabilitation
and remediation work to maintain its properties and permit (ii) seek possible
joint ventures with neighboring mines and (iii) work to secure additional
funding for its operations. Should the Company be unable to complete all of the
actions required by the DMG, or if additional work is required but not timely
performed, the Company may face several violations by the DMG which can lead to
a cease and desist order or, result in the loss of our mining permit.
The Company believes that the best way for its to achieve profitability in the
short term would be to seek to acquire businesses which are operational and
generating revenues. Since the prices of metals and other minerals are low at
this time, the Company is open to entertaining possible business combinations or
joint ventures with operational businesses, irrespective of whether a target
business is operating in our business segment.
The Company has no immediate plans to abandon our efforts at our Colorado mining
properties or to sell a portion or all of our interests in these properties. We
believe that by acquiring a business or businesses that can generate revenues,
we would be able to attract third party investment and possibly reinvest any
profits in our mining businesses.
In the event that the Company acquired additional working capital, the Company
would commence a core-drilling plan to prove the existence of a commercial body
of ore, however, there can be no assurance that funding will be available or an
adequate quantity to undertake this project
Results of Operations:
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.
(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.
-25-
<PAGE>
Results of Operations 1999 vs. 1998.
The Company had no active mine operations during 1999.
The Company had a net loss of $501,926 for 1999 as compared to a net loss of
$1,531,317 during 1998. The decrease of $1,029,391 was attributable to:
(a) A decline in mine expenses and remediation costs from $62,560 (1998)
to $34,812 (1999) resulted from a decrease in mine site activities.
(b) Loss on sales and impairment losses on property and equipment in 1998
of $465,000 which declined to $130,000 in 1999, a reduction of
$335,000.
(c) Depreciation expense declining from $146,355 in 1998 to $60,746 in
1999 due to a reduction in property and equipment from the recognition
of impairment losses and property disposals.
(d) General and administrative expenses decreasing from $642,592 in 1998
to $233,829 in 1999, a cost savings of $408,763. This decrease
resulted from a decline in two costs, bad debt expense and legal fees.
During 1998, a bad debt expense of $350,000 was recognized
attributable to the note receivable from the sale of the Gold Hill
Mill Properties. During 1999, no bad debt expense was incurred. In
addition, legal fees declined to approximately $91,000 (1999) from
approximately $149,000 (1998), a reduction of approximately $58,000.
(e) Other expenses of $100,000 (1998) were attributable to an accrual for
the settlement of certain litigation. Such accrual was reversed in
1999 when the litigation was settled.
Results of Operations 1998 vs. 1997
The Company had no active mine operations during 1998.
The Company had a net loss of $1,531,317 for 1998 as compared to a net loss of
$1,908,475 during 1997. The decrease of $377,158 was attributable to an increase
in general and administrative expense in 1998 of $274,230 and interest expense
of $87,973, offset by the effects of a loss on the sale and/or write down of
mining and milling and other property and equipment ($465,000 in 1998 and
$1,200,000 in 1997) and a decrease in 1998 mine expenses and environmental
remediation costs of $100,385.
General and administrative expenses were $642,592 for 1998 as compared with
$368,353 during 1997 due to increases in professional fees. In addition, the
Company incurred a bad debt expense of $350,000 in 1998 in connection with a
note receivable from the sale of the Gold Hill Mill. Interest expense was
$123,127 during 1998 as compared to $33,334 during 1997 due to increased
interest incurred in connection with the Company's notes payable.
-26-
<PAGE>
Item 7. Financial Statements and Supplementary Data
The index to Financial Statements appears on page F-1.
-27-
<PAGE>
WCM CAPITAL, INC.
(An Exploration Stage Company)
- INDEX -
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
Report of Independent Auditors F - 2
Financial Statements:
Balance Sheets, December 31, 1999 and 1998 F - 3
Statements of Operations, Years Ended December 31, 1999 and 1998 and
Cumulative Period From December 1, 1977 (inception) to December 31, 1999 F - 4
Statements of Stockholders' Equity, Years Ended December 31, 1999 and 1998 and
Cumulative Period From December 1, 1977 (inception) to December 31, 1999 F - 5
Statements of Cash Flows, Years Ended December 31, 1999 and 1998 and
Cumulative Period From December 1, 1977 (inception) to December 31, 1999 F - 10
Notes to Financial Statements F-12/F-29
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders
WCM Capital, Inc.
New York, New York
We have audited the balance sheet of WCM Capital, Inc. (formerly Franklin
Consolidated Mining Co., Inc.) as of December 31, 1999, and the related
statements of operations, changes in stockholders' equity, and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. We did not audit the accumulated
amounts from inception through December 31, 1998, which includes an accumulated
deficit as of December 31, 1998 of ($15,700,041). Those amounts were audited by
other auditors whose report has been furnished to us and our opinion insofar as
it relates to those accumulated amounts is based solely on the report of the
other auditors. The financial statements of WCM Capital, Inc. as of December 31,
1998 were audited by other auditors whose report dated April 13, 1999 on those
statements included an explanatory paragraph that described the going concern
uncertainty discussed in Note 1 to the financial statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, based on our audit and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of WCM Capital, Inc. as of December 31, 1999, and the
results of its operations and its cash flows for the year then ended, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the company is an exploration stage enterprise whose
operations have generated recurring losses and cash flow deficiencies from
inception and, as of December 31, 1999, has a substantial working capital
deficiency. As a result, it was in default with respect to payments on several
notes and on convertible debentures and wholly dependent on outside funding to
finance current operations. Such matters raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans concerning
these matters are also described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of these
uncertainties.
EHRENKRANTZ STERLING & CO., LLC
Certified Public Accountants
Livingston, New Jersey
March 28, 2000
<PAGE>
WCM CAPITAL, INC.
(An Exploration Stage Company)
BALANCE SHEETS
- ASSETS -
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ -- $ --
------------ ------------
TOTAL CURRENT ASSETS -- --
------------ ------------
OTHER ASSETS:
Mining, milling and other property and equipment, net of accumulated
depreciation and depletion of $2,166,261 and $2,105,515 4,617,834 4,808,580
Mining reclamation bonds 137,016 134,602
------------ ------------
$ 4,754,850 $ 4,943,182
------------ ------------
- LIABILITIES AND STOCKHOLDERS' EQUITY -
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 689,049 $ 654,164
Payroll and other taxes payable 29,960 29,960
Convertible debentures 145,000 145,000
Notes payable - related companies and others 218,965 218,965
Note payable - U.S. Mining, Inc. 1,470,295 1,191,586
------------ ------------
TOTAL CURRENT LIABILITIES 2,553,269 2,239,675
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, par value $.01 per share; 40,000,000 shares authorized;
1,318,767 shares issued and outstanding 13,188 329,598
Additional paid-in capital 18,390,360 18,073,950
Deficit accumulated during the exploration stage (16,201,967) (15,700,041)
------------ ------------
2,201,581 2,703,507
$ 4,754,850 $ 4,943,182
See auditors' report and notes to financial statements.
</TABLE>
F-3
<PAGE>
WCM CAPITAL, INC.
(An Exploration Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended Cumulative
December 31 December 1, 1977
------------------------------ (inception) through
1999 1998 December 31, 1999
------------ ------------ -------------------
<S> <C> <C> <C>
REVENUES:
Sales $ -- $ -- $ 876,082
Interest income 2,414 3,920 551,109
Other income -- 4,397 79,397
------------ ------------ ------------
2,414 8,317 1,506,588
------------ ------------ ------------
EXPENSES:
Mine expenses and environmental remediation costs 34,812 62,560 3,621,110
Loss on sale/write-down of mining and milling and other property
and equipment 130,000 465,000 1,795,000
Depreciation and depletion 60,746 146,355 2,361,610
General and administrative expenses 233,829 642,592 6,482,206
Interest expense 144,953 123,127 1,286,432
Amortization of debt issuance expense -- -- 683,047
Equity in net (income) loss and settlement of claims of Joint Venture -- -- 1,059,971
Other (100,000) 100,000 419,179
------------ ------------ ------------
504,340 1,539,634 17,708,555
------------ ------------ ------------
NET LOSS $ (501,926) $ (1,531,317) $(16,201,967)
============ ============ ============
BASIC LOSS PER COMMON SHARE $ (.38) $ (1.16)0
============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 1,318,767 1,318,390
============ ============
</TABLE>
See auditors' report and notes to financial statements.
F-4
<PAGE>
WCM CAPITAL, INC.
(An Exploration Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY Page 1 of 5
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Paid-in Exploration Treasury
Shares Stock Capital Stage Stock Total
--------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock:
Cash 8,268 $ 83 $ 43,017 $ -- $ -- $ 43,100
Non-cash:
Related parties 49,332 493 8,757 -- -- 9,250
In exchange for shares of Gold
Developers and Producers, Inc. 58,400 584 16,850 -- -- 17,434
Net loss -- -- -- (45,584) -- (45,584)
--------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1977 116,000 1,160 68,624 (45,584) -- 24,200
Issuance of common stock:
Pursuant to public offering, net of
underwriting expenses of $11,026 31,368 314 283,681 -- -- 283,995
Cash 12,000 120 242,757 -- -- 242,877
Non-cash 268 2 4,998 -- -- 5,000
Net loss -- -- -- (66,495) -- (66,495)
Balance, December 31, 1978 159,636 1,596 600,060 (112,079) -- 489,577
Issuance of common stock:
Cash 12,368 124 441,126 -- -- 441,250
Non-cash - related parties 2,132 21 59,979 -- -- 60,000
Non-cash - other 356 4 13,346 -- -- 13,350
Net loss -- -- -- (128,242) -- (128,242)
--------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1979 174,492 1,745 1,114,511 (240,321) -- 875,935
Issuance of common stock:
Cash 15,452 154 839,846 -- -- 840,000
Non-cash 3,176 32 118,968 -- -- 119,000
Net loss -- -- -- (219,021) (219,021)
--------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1980 193,120 1,931 2,073,325 (459,342) -- 1,615,914
Issuance of common stock:
Cash 3,500 35 262,465 -- -- 262,500
Issuance of common stock:
Cash 7,706 77 557,923 -- -- 558,000
Non-cash 1,387 14 103,986 -- -- 104,000
Commission on sale of common stock -- -- (57,300) -- -- (57,300)
Net loss -- -- -- (288,105) -- (288,105)
--------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1981 205,713 2,057 2,940,399 (747,447) -- 2,195,009
</TABLE>
See auditors' report and notes to financial statements.
F-5
<PAGE>
WCM CAPITAL, INC.
(An Exploration Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY Page 2 of 5
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Paid-in Exploration Treasury
Shares Stock Capital Stage Stock Total
-------- ---------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock:
Cash 11,480 $ 115 $ 764,011 $ -- $ -- $ 764,126
Non-cash 2,160 22 161,978 -- -- 162,000
Commission on sale of common stock -- -- (56,075) -- -- (56,075)
Net loss -- -- -- (287,291) -- (287,291)
-------- ---------- ----------- ----------- --------- -----------
Balance, December 31, 1982 219,353 2,194 3,810,313 (1,034,738) -- 2,777,769
Issuance of common stock:
Cash 16,975 170 1,189,380 -- -- 1,189,550
Non-cash 944 9 70,825 -- -- 70,834
Exercise of stock options by:
Related parties 3,567 35 267,465 -- -- 267,500
Others 52 1 3,999 -- -- 4,000
Commission on sale of common stock -- -- (124,830) -- -- (124,830)
Net loss -- -- -- (749,166) -- (749,166)
-------- ---------- ----------- ----------- --------- -----------
Balance, December 31, 1983 240,891 2,409 5,217,152 (1,783,904) -- 3,435,657
Issuance of common stock:
Cash 16,023 160 1,151,540 -- -- 1,151,700
Non-cash 367 3 27,497 -- -- 27,500
Exercise of stock options by related parties 2,667 27 199,973 -- -- 200,000
Commission on sale of common stock -- -- (90,950) -- -- (90,950)
Net loss -- -- -- (301,894) -- (301,894)
-------- ---------- ----------- ----------- --------- -----------
Balance, December 31, 1984 259,948 2,599 6,505,212 (2,085,798) -- 4,422,013
Issuance of common stock:
Cash 5,618 56 300,023 -- -- 300,079
Non-cash 133 2 7,498 -- -- 7,500
Exercise of stock options by:
Related parties 2,667 27 149,973 -- -- 150,000
Others 12 0 750 -- -- 750
Commission on sale of common stock -- -- (3,462) -- -- (3,462)
Net loss -- -- -- (133,929) -- (133,929)
-------- ---------- ----------- ----------- --------- -----------
Balance, December 31, 1985 268,378 2,684 6,959,994 (2,219,727) -- 4,742,951
</TABLE>
See auditors' report and notes to financial statements.
F-6
<PAGE>
WCM CAPITAL, INC.
(An Exploration Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY Page 3 of 5
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Paid-in Exploration Treasury
Shares Stock Capital Stage Stock Total
------------- --------------------------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock:
Cash 7,587 $ 76 $ 300,424 $ - $ - $ 300,500
Non-cash - related parties 2,133 21 79,979 - - 80,000
Non-cash - others 1,800 18 53,982 - - 54,000
Net loss - - - (227,788) - (227,788)
------- ------- --------- ---------- ----- -------------
Balance, December 31, 1986 279,898 2,799 7,394,379 (2,447,515) - 4,949,663
Issuance of common stock:
Cash 34,725 347 1,286,954 - - 1,287,301
Non-cash - related parties 2,695 27 70,873 - - 70,900
Non-cash - other 500 5 37,245 - - 37,250
Commission on sale of common stock - - (110,243) - - (110,243)
Net loss - - - (730,116) - (730,116)
Balance, December 31, 1987 317,818 3,178 8,679,208 (3,177,631) - 5,504,755
Issuance of common stock - non-cash - related
parties 2,666 27 49,973 - - 50,000
Net loss - - - (386,704) - (386,704)
Purchase of 666 shares of treasury stock
at cost - - - - (12,500) (12,500)
----------------------------------------------------------------------------- -------------
Balance, at December 31, 1988 320,484 3,205 8,729,181 (3,564,335) (12,500) 5,155,551
Issuance of common stock:
Cash 9,040 90 110,410 - - 110,500
Non-cash - others 3,782 38 33,828 - - 33,866
Non-cash -related parties 2,800 28 31,472 - - 31,500
Private placement:
Cash 30,333 303 22447 - - 22,750
Debt issuance expense - - 455,000 - - 455,000
Conversion of debentures 14,000 140 104,860 - - 105,000
Exercise of stock options 4,000 40 44,960 - - 45,000
Commission on sale of common stock - - (1,500) - - (1,500)
Compensation resulting from stock options
granted - - 39,000 - - 39,000
Net loss - - - (1,279,804) - (1,279,804)
Balance, December 31, 1989 384,439 3,844 9,569,658 (4,844,139) (12,500) 4,716,863
See auditors' report and notes to financial statements.
</TABLE>
F-7
<PAGE>
WCM CAPITAL, INC.
(An Exploration Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY
Page 4 of 5
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Paid-in Exploration Treasury
Shares Stock Capital Stage Stock Total
-------- ----------- ----------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Sale of underwriter's stock warrants -- $ -- $ 100 $ -- $ -- $ 100
Issuance of common stock:
Cash 4,467 45 45,180 -- -- 45,225
Non-cash - others 531 5 5,973 -- -- 5,978
Conversion of debentures 2,133 22 31,978 -- -- 32,000
Net loss -- -- -- (1,171,962) -- (1,171,962)
--------- --------- ------------ ------------ ---------- ------------
Balance, December 31, 1990 391,570 3,916 9,652,889 (6,016,101) (12,500) 3,628,204
Issuance of common stock:
Cash - others 23,995 240 96,691 -- --
96,931
Cash - related parties 24,000 240 89,760 -- -- 90,000
Non-cash - others 15,783 158 59,029 -- -- 59,187
Conversion of debentures 49,747 498 625,502 -- -- 626,000
Exercise of stock options 3,333 33 12,467 -- -- 12,500
Conversion of notes payable 3,333 33 14,967 -- -- 15,000
Net loss -- -- -- (764,926) -- (764,926)
--------- --------- ------------ ------------ ---------- ------------
Balance, December 31, 1991 511,761 5,118 10,551,305 (6,781,027) (12,500) 3,762,896
Issuance of common stock:
Cash - others 26,959 269 169,339 -- -- 169,608
Cash - related parties 8,400 84 48,916 -- -- 49,000
Non-cash - others 23,062 231 365,827 -- -- 366,058
Non-cash - related parties 161 2 604 -- -- 606
Non-cash - exercise of options by related
parties 27,333 273 102,227 -- -- 102,500
Conversion of debentures 7,200 72 161,928 -- -- 162,000
Commission on sale of common stock -
related parties -- -- (7,123) -- -- (7,123)
Net loss -- -- -- (1,343,959) -- (1,343,959)
------------ --------- ------------ ------------ ---------- ------------
Balance, December 31, 1992 604,876 6,049 11,393,023 (8,124,986) (12,500) 3,261,586
Issuance of common stock:
Cash - others 11,645 116 133,848 -- -- 133,964
Cash - related parties 10,360 104 77,596 -- -- 77,700
Non-cash - others 2,000 20 14,980 -- -- 15,000
Non-cash - settlement of litigation 13,333 133 99,867 -- -- 100,000
Non-cash - exercise of options by related
parties 2,667 27 9,973 -- -- 10,000
Conversion of debentures 1,867 19 34,981 -- -- 35,000
Conversion of loan 1,333 13 9,987 -- -- 10,000
Net loss -- -- -- (797,619) -- (797,619)
------------ --------- ------------ ------------ ---------- ------------
Balance, December 31, 1993 648,081 6,481 11,774,255 (8,922,605) (12,500) 2,845,631
See auditors' report and notes to financial statements
</TABLE>
F-8
<PAGE>
WCM CAPITAL, INC.
(An Exploration Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY
Page 5 of 5
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Common Paid-in Exploration Treasury
Shares Stock Capital Stage Stock Total
--------- ------- ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Retirement of treasury stock (666) $ (7) $ (12,493) $ -- $ 12,500 $ --
Net loss -- -- -- (381,596) -- (381,596)
--------- ------- ------------ ------------ ---------- -----------
Balance, December 31, 1994 647,415 6,474 11,761,762 (9,304,201) -- 2,464,035
Issuance of common stock:
Settlement of claims by joint venture partner 80,000 800 935,200 -- -- 936,000
Repayments of loan from joint venture partner 42,667 427 498,773 -- -- 499,200
Repayments of long-term loans from related
parties and accrued interest 115,730 1,157 675,868 -- -- 677,025
Exchange of shares for profit participation
interests 36,000 360 (360) -- -- --
Net loss -- -- -- (1,641,944) -- (1,641,944)
--------- ------- ------------ ------------ ---------- ------------
Balance, December 31, 1995 921,812 9,218 13,871,243 (10,946,145) -- 2,934,316
Issuance of common stock for:
Cash 23,379 234 297,366 -- -- 297,600
Services and interest 49,547 495 561,942 -- -- 562,437
Conversion of convertible notes 57,263 573 557,747 -- -- 558,320
Repayments of loan from joint venture partner 30,880 309 361,566 -- -- 361,875
Repayments of long-term loans from related
party 124,892 1,249 1,462,332 -- -- 1,463,581
Net loss -- -- -- (1,314,104) -- (1,314,104)
--------- ------- ------------ ------------ ---------- ------------
Balance, December 31, 1996 1,207,773 12,078 17,112,196 (12,260,249) -- 4,864,025
Issuance of common stock for:
Extension of lease rights 1,386 14 12,986 -- -- 13,000
Conversion of note payable 102,941 1,089 598,571 -- -- 600,000
Conversion of debt 6,667 67 50,433 -- -- 50,500
Acquisition of joint venture -- -- 615,774 -- -- 615,774
Net loss -- -- -- (1,908,475) -- (1,908,475)
Balance, December 31, 1997 1,318,767 13,188 18,390,360 (14,168,724) -- 4,234,824
Net loss -- -- -- (1,531,317) -- (1,531,317)
--------- ------- ------------ ------------ ---------- ------------
BALANCE, DECEMBER 31, 1998 1,318,767 13,188 18,390,360 (15,700,041) -- 2,703,507
Net Loss -- -- -- (501,926) -- (501,926)
--------- ------- ------------ ------------ ---------- ------------
BALANCE, DECEMBER 31, 1999 1,318,767 $13,188 $ 18,390,360 $(16,201,967) $ -- $ 2,201,581
========= ======= ============ ============ ========== ============
See auditors' report and notes to financial statem
</TABLE>
F-9
<PAGE>
WCM CAPITAL, INC.
(An Exploration Stage Company)
STATEMENTS OF CASH FLOWS
Page 1 of 2
<TABLE>
<CAPTION>
Cumulative
December 1, 1977
Years Ended (inception)
December 31 Through
1999 1998 December 31, 1999
--------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (501,926) $ (1,531,317) $(16,201,967)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and depletion 60,746 146,355 2,361,610
Provision for bad debt -- 350,000 350,000
Write-down of mining and milling and other property and
Equipment 130,000 200,000 1,530,000
Amortization of debt issuance expense --
-- 683,047
Loss on sale of equipment -- 265,000 265,000
Value of common stock issued for:
Services and interest -- -- 1,934,894
Settlement of litigation --
-- 100,000
Settlement of claims by joint venture partner --
-- 936,000
Compensation resulting from stock options granted -- -- 311,900
Value of stock options granted for services -- -- 112,500
Equity in net (income) loss of joint venture -- -- 123,971
Other -- -- (7,123)
Changes in operating assets and liabilities:
Prepaid expenses -- -- --
Interest accrued on mining reclamation bonds (2,414) (3,921) (12,016)
Accounts payable and accrued expenses 34,885 285,010 1,151,265
------------ ------------ ------------
Net cash used in operating activities (278,709) (288,873) (6,560,919)
------------ ------------ ------------
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)
------------ ------------ ------------
See auditors' report and notes to financial statements
</TABLE>
F-10
<PAGE>
WCM CAPITAL, INC.
(An Exploration Stage Company)
STATEMENTS OF CASH FLOWS
Page 2 of 2
<TABLE>
<CAPTION>
Cumulative
December 1, 1977
Years Ended (inception)
December 31 Through
1999 1998 December 31, 1999
-------------------------- ------------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuances of common stock -- -- 8,758,257
Issuance of underwriter's stock warrants -- -- 100
Commissions on sales of common stock -- -- (381,860)
Purchases of treasury stock -- -- (12,500)
Payments of deferred underwriting costs -- -- (63,814)
Proceeds from exercise of stock options -- -- 306,300
Issuance of convertible debentures and notes -- -- 1,505,000
Proceeds of advances from joint venture partner -- -- 526,288
Advances to joint venture partner -- -- (181,017)
Payments of debt issuance expenses -- -- (164,233)
Proceeds of other notes and loans payable 278,709 287,795 1,881,778
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 278,709 287,795 12,061,592
------------ ------------ ------------
INCREASE (DECREASE) IN CASH -- (1,078) --
CASH, BEGINNING OF PERIOD -- 1,078 --
------------ ------------ ------------
CASH, END OF PERIOD $ -- $ -- $ --
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA:
Interest paid $ - ____ $ -- $ 299,868
============ ============ ============
NON-CASH ITEMS:
</TABLE>
During 1998: The Company sold its Gold Hill Properties with a book value of
$1,340,000 for property having a fair market value of $725,000 and a note
receivable of $350,000. A loss of $265,000 was recognized on the
transaction.
See auditors' report and notes to financial statements.
F-11
<PAGE>
WCM CAPITAL, INC.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - BASIS OF PRESENTATION/GOING CONCERN UNCERTAINTY:
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. However, the Company has had
recurring losses and cash flow deficiencies since inception. As at December
31, 1999 and 1998, the Company has a cash balance of $0, an accumulated
deficit of $16,201,967 and $15,700,041, respectively, current liabilities
of $2,553,269 and $2,239,675, respectively, and a working capital
deficiency of $2,553,269 and $2,239,675, respectively. The Company was in
default on the payment of the principal balance and accrued interest on
certain notes and debentures (see Notes 5, 6 and 7). 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 or environmental matters (see Note 8B), 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.
U.S. Mining Co. ("USM"), has verbally pledged to provide financing to the
Company on an as needed basis through December 31, 2000. The funds received
will cover general, administrative and other costs. Additional funds will
be needed to support the extraction and milling processes once underway as
well as to upgrade the processing facilities to allow for an increase in
ore processing capacity.
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 of the
Company. Such foreclosure actions would have a material adverse effect on
the future operations of the Company.
Substantially all of the $4,617,834 of mineral properties and equipment
included in the accompanying balance sheet as of December 31, 1999, 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.
F-12
<PAGE>
WCM CAPITAL, INC.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) Organization:
WCM Capital, Inc. (formerly Franklin Consolidated Mining Co., Inc.) (the
"Company") originally incorporated on December 1, 1976 under the laws of
the State of Delaware, is engaged in the exploration, development and
mining of precious and non-ferrous metals, including gold, silver, lead,
copper and zinc. The Company owns or has an interest in a number of
precious and non-ferrous metal properties. The Company's principal mining
properties are (i) the Franklin Mines, located near Idaho Springs in Clear
Creek County, Colorado, for which the Company acquired the exclusive right
to explore, develop, mine, and extract all minerals located in
approximately 51 mining claims of which 28 are patented (the "Franklin
Mines"), (ii) the Franklin Mill, a crushing and flotation mill which is
located on the site of the Franklin Mines (the "Franklin Mill"), and up
until its sale on June 5, 1998 (iii) the Gold Hill Mill (see Note 2d), a
fully permitted modern facility located in Boulder County, Colorado (the
"Gold Hill Mill"). The Company is an exploration stage enterprise because
it did not generate any significant revenues through December 31, 1999.
During October 1998, the Company's shareholders approved an amendment to
its certificate of incorporation changing the name of the Company to WCM
Capital, Inc.
(b) Accounting Estimates:
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements, as well as the
reported amounts of revenues and expenses during the reporting period.
While actual results could differ from those estimates, management does not
expect such variances, if any, to have a material effect on the financial
statements.
F-13
<PAGE>
WCM CAPITAL, INC.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(c) Mining, Milling and Other Property and Equipment:
Mining, milling and other property and equipment are recorded at cost.
Costs incurred to acquire, explore, improve and develop mining and milling
properties are capitalized and amortized in relation to the production of
estimated reserves. Mine development expenditures incurred substantially in
advance of production are deferred on an individual property basis until
the viability of a property is determined. General exploration costs and
costs to maintain the mineral rights and leases are expensed as incurred.
Management of the Company periodically reviews the recoverability of the
capitalized mineral properties and mining equipment. Management takes into
consideration various information including, but not limited to, historical
production records taken from previous mine operations, results of
exploration activities conducted to date, estimated future prices and
reports and opinions of outside geologists, mine engineers, and
consultants. When it is determined that a project or property will be
abandoned or its carrying value has been impaired, a provision is made for
any expected loss on the project or property.
Post-closure reclamation and site restoration costs are estimated based
upon environmental and regulatory requirements and accrued over the life of
the mine using the units-of-production method. Current expenditures
relating to ongoing environmental and reclamation programs are expensed as
incurred.
Depreciation of equipment is computed using the straight-line method over
the estimated useful lives of the related assets.
F-14
<PAGE>
WCM CAPITAL, INC.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(d) Impairment of Long-Lived Assets:
The Company has adopted the provisions of FASB Statement of Financial
Accounting Standards No. 121, "Accounting of the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" (SFAS 121). Under SFAS
121, impairment losses on long-lived assets are recognized when events or
changes in circumstances indicate that the undiscounted cash flows
estimated to be generated by such assets are less than their carrying value
and, accordingly, all or a portion of such carrying value may not be
recoverable. Impairment losses then are measured by comparing the fair
value of assets to their carrying amounts. It was the Company's
determination that due to certain restrictions associated with milling
operations in Boulder County, Colorado, the Gold Hill Mill properties would
not be placed into operation. On June 5, 1998 the Company sold its Gold
Hill Mill Properties in exchange for property and equipment having a market
value of $725,000 and a 14% note receivable of $350,000. As of December 31,
1998, (a) the $350,000 note was reduced to $0 and (b) a $200,000 impairment
loss was taken against the $725,000 of equipment acquired. During 1999 an
additional $130,000 impairment loss was taken against the Company's mining,
milling and other property and equipment.
(e) Revenue Recognition:
Revenues, if any, from the possible sales of mineral concentrates will be
recognized by the Company only upon receipt of final settlement funds from
the smelter.
(f) Environmental Remediation Costs:
Environmental remediation costs are accrued based on estimates of known
environmental remediation exposures. Ongoing environmental compliance
costs, including maintenance and monitoring costs are expensed as incurred.
F-15
<PAGE>
WCM CAPITAL, INC.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(g) Income Taxes:
Deferred income taxes are to be provided on transactions, which are
reported in the financial statements in different periods than for income
tax purposes. The Company utilizes Financial Accounting Board Statement No.
109, "Accounting for Income Taxes," ("SFAS 109"). SFAS 109 requires
recognition of deferred tax liabilities and assets for expected future tax
consequences of events that have been included in the financial statements
or tax returns. Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statements and tax
basis of assets and liabilities using enacted tax rates in effect for the
year in which the difference is expected to reverse. Under SFAS 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized (see Note 9).
(h) Loss Per Common Share:
The Company has adopted SFAS 128 "Earnings Per Share" ("SFAS 128"), which
requires the presentation of "basic" and "diluted" earnings per share on
the face of the income statement. Loss per common share is computed by
dividing the net loss by the weighted average number of common shares
outstanding during each period. Common stock equivalents have been excluded
from the computations since the results would be anti-dilutive. Losses per
share have been restated for prior periods to give effect to the reverse
stock splits during 1999 and 1998 (see Note 10).
(i) Fair Value of Financial Investments:
The carrying amount of the Company's borrowings approximate fair value.
(j) Statement of Comprehensive Income:
SFAS 130 "Reporting Comprehensive Income" prescribes standards for
reporting comprehensive income and its components. Since the Company
currently does not have any items of comprehensive income, a statement of
comprehensive income is not required.
F-16
<PAGE>
WCM CAPITAL, INC.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 3 - ACQUISITIONS OF MINING AND MILLING PROPERTIES:
(a) Franklin Mines and Mill
On December 26, 1976, the Company acquired Gold Developers and Producers
Incorporated, a Colorado corporation which, prior to the acquisition,
leased 28 patented mining claims from Audrey and David Hayden and Dorothy
Kennec pursuant to a mining lease and option to purchase, dated November
12, 1976 (hereinafter collectively referred to as the "Hayden/Kennec
Leases"). In 1981, the Company commenced a rehabilitation program to extend
and rehabilitate the shafts and tunnels in place at the Franklin Mines,
install the Franklin Mill, and search for and delineate a commercial ore
body. In 1983, the Company completed the Franklin Mill.
(b) Joint Venture
In February 1993, the Company entered into a joint venture arrangement with
Island Investment Corp., a Nevada corporation ("Island"), pursuant to which
the parties formed Zeus No. 1 Investments, a California general partnership
(the "Joint Venture"). The Company had a 17.5% interest in the Joint
Venture, and Island had the remaining 82.5% interest. The Joint Venture was
formed to develop the Franklin Mines and related assets of the Company. In
May 1993, Island assigned its interest in the Joint Ventures to Gems and
Minerals Corp., ("Gems") a wholly owned subsidiary of Island. On July 15,
1996, Gems transferred 31.5% of its 82.5% interest in the Joint Venture to
Nuco Ventures, Inc., a Delaware Company, and wholly owned subsidiary of
Gems ("Nuco").
During 1997, Gem and Nuco's aggregate 82.5% interest in the Joint Venture
was acquired by U.S. Mining, Inc., a New Jersey corporation ("USM"). USM
assigned the acquired interest to the Company in exchange for the
assumption by the Company of certain liabilities. Upon the acquisition of
the 82.5% interest of the Joint Venture by the Company, the relationship
with Gems was terminated and the Joint Venture was effectively dissolved.
F-17
<PAGE>
WCM CAPITAL, INC.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
NOTE 3 - ACQUISITIONS OF MINING AND MILLING PROPERTIES (continued):
<S> <C>
In conjunction with these transactions, the Company:
Acquired mine and mill improvements having a net book value of
(See Note 4) $ 780,787
Eliminated the Joint Venture deficit of $123,971, after giving effect
to equity in net income of Joint Venture of $9,249 for 1997 123,971
Eliminated a $458,567 liability which represented the remainder of a note
and related accrued interest payable to a subsidiary of Gems
in conjunction with the acquisition of the Gold Hill Mill 458,567
Eliminated a $229,204 receivable from Gems (229,204)
Assumed notes payable - other of $87,000 and related accrued interest on
these notes of $16,858 (see Note 5) (103,858)
Assumed a liability of $408,482 payable to POS Financial, Inc.
(See Note 7) (408,482)
Assumed a liability of $20,255 associated with the Joint
Venture less other items of $ 14,248 (6,007)
---------
The net amount of $615,774 was credited to additional
paid-in capital $ 615,774
=========
</TABLE>
(c) Gold Hill Mill
On July 3, 1996, the Company acquired the Gold Hill Mill from a wholly
owned subsidiary of Gems, in exchange for an 8% mortgage note with an
initial principal balance of $2,500,000. The Gold Hill Mill is a fully
permitted milling facility located in Boulder, Colorado.
At December 31, 1997, the Company reduced by $1,200,000 the carrying value
of certain of the Gold Hill Mill assets to $1,340,000, which approximates
management's estimate of fair value. All the Gold Hill assets were sold
during 1998 (see Note 2).
(d) Mogul Mines
On September 26, 1996, the Company acquired a 20% interest in Newmineco, an
inactive company, by issuing a 9.5% note payable with a principal balance
of $600,000. Newmineco represented that it held the exclusive mining rights
related to the Mogul Mines in the Spencer Mountains of Colorado. Because of
certain permitting and other problems in the Mogul Mines, the purchase
price to the Company was reduced to $150,000 in 1996, and the investment
was written down to zero as of December 31, 1997.
F-18
<PAGE>
WCM CAPITAL, INC.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 4 - MINING, MILLING AND OTHER PROPERTY AND EQUIPMENT:
Mining, milling and other property and equipment, consist of the following
at December 31:
1999 1998
---------- -----------
Machinery and equipment $1,617,220 $1,747,220
Mine and mill improvements (a) 5,071,065 5,071,065
Furniture and fixtures 11,714 11,714
Automotive equipment 84,096 84,096
---------- ----------
6,784,095 6,914,095
Less: accumulated depreciation and depletion 2,166,261 2,105,515
---------- ----------
$4,617,834 $4,808,580
========== ==========
(a) Includes mine and mill improvements of $780,787 in connection with the
termination of the Joint Venture (see Note 3).
During the years ended December 31, 1999 and 1998, the Company expended
$34,812 and $62,560, respectively on environmental remediation costs and
mine expenses.
F-19
<PAGE>
WCM CAPITAL, INC.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 5 - NOTES PAYABLE - RELATED PARTY AND OTHERS:
Notes payable related party and others consist of the following at December
31, 1999 and 1998:
12% unsecured demand notes due to the Company's
former President and his affiliated entity $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 (8% at December 31, 1999).
(b) This principal amount represents four unsecured promissory notes. The
Company assumed these obligations on November 25, 1997, as part of the
acquisition from USM of the remaining interest in the Joint Venture (see
Note 3). These notes were in default when assumed by the Company, and
remain in default as of December 31, 1999. Interest is being accrued at 8%.
Accrued interest on the above notes at December 31, 1999 and 1998
aggregated approximately $66,000 and $45,600 respectively.
F-20
<PAGE>
WCM CAPITAL, INC.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 6 - CONVERTIBLE DEBENTURES AND OTHER CONVERTIBLE DEBT:
The Company's convertible debt at December 31, 1999 and 1998 consists of:
12.25% convertible debenture originally due 12/31/94 $145,000
As of December 31, 1999 and 1998, the Company was in default with respect
to the payment of the $145,000 principal balance of the debenture and
accrued interest of approximately $84,000 and $67,000, respectively. As a
result of its default, the Company may be subject to legal proceedings by
the Transfer Agent/Trustee under the Indenture Agreement or from
debentureholders seeking immediate repayment of principal plus interest and
other costs. Management cannot assure that there will be funds available
for the required payments or what the effects will be of any actions
brought by or on behalf of the debentureholders (see Note 8c).
In September 1996, the Company acquired its 20% interest in Newmineco by
issuing a 9.5% note payable to Gems with a principal balance of $600,000.
This note could be converted to common stock at the Company's option on or
after January 1, 1997. On February 10, 1997, the Company notified the
assignees that it had elected to convert the principal balance of the 9.5%
note into 102,564 shares of common stock, as adjusted based on the
conversion rate of $5.85, per share as adjusted. As a result of problems
concerning permitting and various other issues related to the Mogul Mines,
the purchase price was reduced to $150,000 on December 31, 1996 and to $-0-
on December 31, 1997 (see Note 3). The $450,000 (1996) and $150,000 (1997)
reductions in the purchase price were effectuated through an equivalent
reduction in the principal balance of an 8% mortgage note that was payable
to an affiliate of Gems by the Company.
NOTE 7 - NOTE PAYABLE - RELATED PARTY:
The Company had outstanding an 8% promissory note balance of $955,756, at
December 31, 1997, which represents monies advanced to the Company by an
affiliated entity, POS Financial, Inc. ("POS"), a New Jersey corporation
and obligations assumed in connection with the contributions of Joint
Venture interests (see Note 3). 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 and 1999 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 are owned by a director of WCM and can exert
significant influence over the Company. Additional amounts were loaned to
F-21
<PAGE>
WCM CAPITAL, INC.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 7 - NOTE PAYABLE - RELATED PARTIES (continued):
the Company by USM during 1998 and 1999. The balance due on the note at
December 31, 1999 aggregated $1,470,295 plus accrued interest of $198,745.
The balance due on the note at December 31, 1998 aggregated $1,191,586 plus
accrued interest of $91,950.
All royalty payments made under the Hayden/Kennec Leases were expenses as
incurred and included in mine expenses and environmental remediation costs
in the accompanying Statements of Operations.
NOTE 8 - COMMITMENTS AND CONTINGENCIES:
(a) Lease Agreements:
The original Hayden/Kennec Leases provided for payment by the Company of
certain liabilities relating to the leased property and a minimum royalty
payment of $2,000 per month or 5% of the Company's net smelter royalties
realized from production, whichever is greater to Mrs. Hayden and Mrs.
Kennec. The original Hayden/Kennec Leases expired in November 1996, at
which time the Company had the option to purchase the leasehold rights for
a purchase price of $1,250,000 less any royalties previously paid as of the
expiration date. As of November 1996, the Company had paid approximately
$480,000 in royalties.
On November 19, 1996, the Company entered into an amendment to the
Hayden/Kennec Leases with Dorothy Kennec (the "Kennec Amendment"). Pursuant
to the terms of the Kennec Amendment, Kennec agreed to extend the term as
it relates to her portion of the leasehold rights through November 12,
1997. In consideration for such extension, the Company agreed to increase
the royalty payment due to Kennec under the original Hayden/Kennec Leases
from $1,000 to $2,000 per month and to issue to Kennec 1,387 shares of the
common stock of the Company valued at $9.37 per share as adjusted, having
an aggregate value of $13,000. All of the payments made under the Kennec
Amendment plus the value of the shares issued thereunder are to be further
applied against the buy-out price of the property under the original
Hayden/Kennec Leases. The 1,387 shares of common stock were issued on April
9, 1997.
To further secure the Company and the Joint Venture, Gems entered into an
agreement on December 21, 1995 to purchase Hayden's interest thereto (the
"Hayden Interests") for a purchase price of $75,000. Gems made an initial
payment of $5,000 to Hayden and the remainder of the purchase price was to
be paid on or prior to the expiration date of the Hayden/Kennec Leases.
Gems advised the Company that under Colorado law, if an owner
F-22
<PAGE>
WCM CAPITAL, INC.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 8 - COMMITMENTS AND CONTINGENCIES (Continued):
of 50% of mineral rights desired to exploit those rights, then the
remaining 50% owner could not object to the exploitation of the rights,
provided the non-participating owner received 50% of the net profits
generated from such exploitation. Therefore, Gems informed the Company that
it believed that with the acquisition of the Hayden interest, together with
the portion of the Hayden/Kennec Leases owned by Kennec, the Company and
the Joint Venture would have adequate access to the minerals during the
remainder of the term of the Hayden/Kennec Leases on a continuing basis.
On November 12, 1997, Gems had failed to comply with the terms of the
Hayden/Kennec-Gems Purchase Agreement. On November 13, 1997, Hayden entered
into an agreement to sell the Hayden interests to USM for a purchase price
of $75,000 (the "Hayden-USM Purchase Agreement"). The purchase price is
evidenced by a note, due on February 2, 1998. Payment on the note has been
extended until USM receives a report of clear title.
Upon the execution of the Hayden-USM Purchase Agreement, USM agreed to
extend the Hayden/Kennec Leases upon the same terms and conditions
currently in effect through March 13, 1998 (the "Extended Expiration
Date"). As of December 31, 1999 USM had yet to receive clear title but
continued to make Purchase Agreement extension payments.
While the Company has extended the term of the Hayden/Kennec Leases, as
amended through March 13, 1998, in the event that it shall expire or
otherwise terminate, any improvements made on the property become the
property of the lessor without any further compensation to the Company and
the lessor would have to reclaim the property in accordance with the State
of Colorado Division of Minerals and Geology (the "DMG") requirements in
effect at the time of such expiration or termination. Thus, the likelihood
that the Company would recover fixtures and other equipment on the property
may be minimal.
All royalty payments made under the Hayden/Kennec leases were expenses as
incurred in mine expenses and environmental remediation costs in the
accompanying Statement of Operations.
The Company pays a monthly rental of $3,500 (on a month to month basis) for
the office space, secretarial and other services provided to the Company
pursuant to an oral agreement with a non-affiliate. Rent expense was
$41,000 and $33,450 in 1999 and 1998, respectively.
F-23
<PAGE>
WCM CAPITAL, INC.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 8 - 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:
The Company is involved in various litigation as explained below:
(i) The Company and others were defendants in an action related to a
dispute over fees for engineering consulting services. The parties
settled this matter in September 1999 and the litigation was
discontinued.
During 1998, $100,000 of other expenses was accrued in connection with
this litigation. Such accrual was reversed in 1999 when the litigation
was settled.
(ii) In September 1997, certain of the Company's 12.25% Convertible
Debenture holders (see Note 6) instituted an action against the
Company for payment of approximately $42,500 principal amount of its
12.25% Convertible Debentures plus accrued and unpaid interest
totaling approximately $13,000 and other costs and expenses related
thereto. The Company has answered the aforesaid complaint. A default
judgment 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.
F-24
<PAGE>
WCM CAPITAL, INC.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 8 - COMMITMENTS AND CONTINGENCIES (Continued):
(iii)On or about May 14, 1998, Redstone Securities Inc. ("Redstone")
commenced an action against the Company in connection with an
Investment Banking Agreement dated August 28, 1996, between Redstone
and the Company. On or about July 31, 1998, the Company answered the
complaint and filed a cross complaint against Redstone. In September
1999, the matter was settled whereby the Company agreed to lift the
stop transfer order on the shares held by Redstone to allow Redstone
the ability to sell those shares to an unaffiliated third party.
(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 (see Note 10). 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.
F-25
<PAGE>
WCM CAPITAL, INC.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 9 - INCOME TAXES:
As of December 31, 1999, the Company had federal net operating loss
carryforwards of approximately $13,500,000 available to reduce future
federal taxable income, which, if not used, will expire at various dates
through December 31, 2019. Changes in the ownership of the Company may
subject these loss carryforwards to substantial limitations.
The Company has offset the deferred tax asset attributable to the potential
benefits from such net operating loss carryforwards and the reduction in
carrying value by an equivalent valuation allowance due to the
uncertainties related to the extent and timing of its future taxable
income. There are no other material temporary differences.
<TABLE>
<CAPTION>
Deferred Tax Valuation
Asset Allowance
------------ ----------
<S> <C> <C>
Balance at January 1, 1998, attributable to federal
net operating loss carry forward $3,578,000 $3,578,000
Increase in federal net operating loss, year ended
December 31, 1998 861,000 861,000
Write down of equipment received as part of
Sale of Gold Hill 70,000 70,000
---------- ----------
Balance at December 31, 1998 4,509,000 4,4509,000
Increase in Federal net operating loss,
Year ended December 31, 1999 210,000 210,000
---------- ----------
Balance at December 31, 1999 $4,719,000 $4,719,000
========== ==========
</TABLE>
NOTE 10 - STOCKHOLDERS' EQUITY:
(a) Reverse Stock Splits:
On May 26, 1998, the Company effectuated a twenty-five-for-one reverse
stock split. On December 20, 1999, the Company effectuated a three-for-one
reverse stock split. The accompanying financials give retroactive effect to
these reverse stock splits.
(b) Common Stock Reserved for Issuance:
At December 31, 1999 and 1998, there were 3,867 shares of common stock
reserved for issuance upon the exercise of the 12.25% $145,000 convertible
debentures (See Note 6).
F-26
<PAGE>
WCM CAPITAL, INC.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 10 - STOCKHOLDERS' EQUITY (Continued):
(c) Issuances of Common Stock
From December 1, 1977 (inception) through December 31, 1999, the Company
issued common stock for:
Shares Amount
---------- -----------
Cash, including net proceeds of $283,995 from
Public offering 355,648 $ 8,758,256
Exercise of stock options 46,298 792,250
Commissions of sales of common stock -- (451,483)
Purchase and retirement of treasury stock (666) (12,500)
Non-cash, other than related parties:
Services and property 165,582 1,673,394
Conversion of debentures and notes payable 246,107 2,648,820
Stock options and stock warrants granted -- 39,100
Settlement of litigation and other 13,710 100,000
Non-cash, related parties:
Services and property 97,919 918,030
Settlement of claims by related parties 80,000 936,000
Repayment of related party loans 314,169 3,001,681
--------- -----------
1,318,767 $18,403,548
========== ===========
NOTE 11 - SUBSEQUENT EVENTS
On January 18, 2000, the Company, USM and USM's sole shareholder
("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 then issued and outstanding 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
F-27
<PAGE>
WCM CAPITAL, INC.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 11 - SUBSEQUENT EVENTS (Continued):
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 of the Securities and Exchange Commission ("Commission"). Upon
approval of the proxy statement by the Commission the Company will submit
the Transaction to its shareholders for approval.
F-28
<PAGE>
INDEPENDENT AUDITORS REPORT
To the Board of Directors and Stockholders
WCM Capital, Inc.
We have audited the balance sheets of WCM Capital, Inc. (formerly Franklin
Consolidated Mining Co., Inc.) as of December 31, 1998, and the related
statements of operations, changes in stockholders' equity, and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. We did not audit the accumulated
amounts from inception through December 31, 1996, which includes an accumulated
deficit as of December 31, 1996 of $(12,260,249). Those amounts were audited by
other auditors whose report has been furnished to us and our opinion insofar as
it relates to those accumulated amounts is based solely on the report of the
other auditors.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of WCM Capital, Inc., and the results of its operations
and its cash flows for the year then ended in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company is a development stage enterprise whose
operations have generated recurring losses and cash flow deficiencies from
inception and, as of December 31, 1998, has a substantial working capital
deficiency. As a result, it was in default with respect to payments on several
notes and on convertible debentures and substantially dependent on outside
funding for financing. Such matters raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans concerning these
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of these uncertainties.
LAZAR LEVINE & FELIX LLP
New York, New York
April 13, 1999
F-29
<PAGE>
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On March 16, 2000, the Company notified Lazar Levine & Felix ("LLF") that it
would no longer serve as its independent auditors. The decision to dismiss LLF
was approved by the Board of Directors of the Company.
During the two most recent fiscal years of the Company, none of the reports of
LLF on the financial statements of the Company contained an adverse opinion or a
disclaimer of opinion or was qualified or modified as to audit scope, or
accounting principles; however, LLF has qualified or modified its reports on the
financial statements of the Company as a going concern. During the two most
recent fiscal years and any subsequent interim period preceding the dismissal of
LLF, there were no disagreements between the Company and LLF concerning
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure which would have caused LLF to make a reference to the
subject matter thereof in its report had such disagreement not been resolved to
the satisfaction of LLF.
The Company retained Ehrenkrantz Sterling & Co. Certified Public Accountants as
its independent auditors for fiscal year 1999.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Person; Compliance
with Section 16(a) of the Exchange Act
Name Age Position
---- --- --------
Robert Waligunda 53 Current President and Treasurer
Richard Brannon 50 Vice-President-Secretary
George E. Otten 73 Vice President
William C. Martucci 58 Director
Robert W. Singer 52 Former Director
Ronald Ginsberg 62 Former Director
William Wishinsky 36 Director
Casey Myhre 35 Director
John R. Bruno 74 Former Director
-28-
<PAGE>
ROBERT L. WALIGUNDA. Mr. Waligunda has served as President and Treasurer of the
Company since October 1998. Mr. Waligunda has served as a director of the
Company from 1985 and as Secretary of the Company from August 1995 to October
1998. From 1965 to the present, Mr. Waligunda has served as founder, President,
and principal stockholder of Sky Promotions, Inc., a Pittstown, New Jersey
marketing and management company involved in sales, advertising and marketing of
hot air balloons and inflatable products. He is the founder and director of
International Professional Balloon Pilots Racing Association, a member of the
advisory board of Aerostar International, Inc., the world's oldest and largest
balloon manufacturing company, and a member of the National Aeronautic
Association, the Experimental Aircraft Association, and the Airplane Owner and
Pilots Association. Mr. Waligunda received a Masters of Science degree in
guidance and psychological services from Springfield College in 1968.
RICHARD BRANNON Mr. Brannon has served as the Vice President since February 1996
and Secretary of the Company since October 1998. Mr. Brannon is a California
licensed real estate broker and 100% owner of A Reel Mortgage, Inc., a mortgage
and loan servicing company organized in 1991. Mr. Brannon is a founding director
of the California Trustee Mortgage Broker Association, a not-for-profit
corporation.
GEORGE E. OTTEN Mr. Otten has served as Vice President of the Company since
October 1998. Mr. Otten was the first president of the Company from 1976 through
1985 and is the owner and operator of the Bates Hunter Mine under the name
"Central City Consolidated Mining Company" since 1985. Since 1997, Mr. Otten is
the president, director, and General Operating officer of all operations of
Hunter Gold Mining, Inc. Central City Colorado. Mr. Otten holds a degree in
Business Administration from Adams State College, Alamosa, Colorado.
WILLIAM C. MARTUCCI From 1974 to the present, Mr. Martucci has served as
president and chairman of United Grocers Clearing House, Inc., a privately held
company he founded to serve the coupon redemption, fulfillment and promotional
needs of manufacturers and retailers. In 1997 Mr. Martucci founded and is the
sole director, officer and shareholder of Shoppers Online, Inc. that portal and
web page for business-to-business and business to consumer products and
services. Additionally, Mr. Martucci is the sole shareholder; director and
president of U.S. Mining, Inc. ("USM") Mr. Martucci received a Bachelor of
Science in Philosophy from Florida International University in 1973.
RONALD GINSBERG Mr. Ginsberg was a director of the Company from October 26, 1998
to May 27, 1999 and is President of the Foodtown Supermarket Cooperative,
headquartered in Edison, New Jersey. He is also Secretary and Director of Twin
County Grocers located in Edison, New Jersey and Director of the New Jersey Food
Council. Mr. Ginsberg attended Drexel Institute of Technology and Temple
University.
WILLIAM H. WISHINSKY Mr. Wishinsky has been a Director of the Company and a
member of the Audit Committee of the Board of Directors since October 4, 1999.
Since 1990, Mr. Wishinsky has been the principal of William H. Wishinsky, CPA,
P.C., an accounting firm. From 1988 until 1990, he was an accountant at
Friedman, Alpren & Green, CPA's in New York City. Mr. Wishinsky graduated from
Pace University in New York and received a B.B.A. in Accounting in June 1986. He
became a certified public accountant in 1990.
-29-
<PAGE>
CASEY MYHRE Mr. Myhre has been a Director of the Company and a member of the
Audit Committee of the Board of Directors since October 4, 1999. Since early
1999, Mr. Myhre has been manager of Kimball International, a furniture
manufacturing company. For the four years prior to his being promoted to
management he worked for Kimball International as a salesman. Mr. Myhre attended
Minnesota School of Business and graduated in 1987.
JOHN R. BRUNO Mr. Bruno was a Director of the Company from September 30, 1999
through February 28, 2000. Since 1996, Mr. Bruno has been the president and
founder of The Bruno Group, a division of the Keyes Martin Company, New Jersey
public relations, and funding consultant. In October 1996, Bruno Associates
merged with The Keyes Martin Company, a New Jersey advertising and
marketing/public relations firm. The merger resulted in Keyes Martin, The Bruno
Group, creating one of the largest multi-talented groups of funding and
marketing/public relations' specialists in the State of New Jersey. From 1967 to
1997, John R. Bruno was President and Chief Executive Officer of Bruno
Associates Inc. a public relations and funding company.
ROBERT W. SINGER Mr. Singer served as a director of the Company from October 26,
1998 to October 4, 1999. Mr. Singer currently holds the position of Assistant
Majority Leader in the New Jersey State Senate. Prior to being elected as a
state Senator, he served three terms in the New Jersey Assembly. In this latter
capacity, Mr. Singer was named Majority Whip, by his Colleagues and served as
both Vice Chairman of the Commerce and Regulated Professions Committee and
Community Development, Agriculture and Tourism Committee. Senator Singer has
distinguished himself, among his national peers, for his ability to create
environments where high technology and economic development can coexist with
environmental priorities. Additionally, the Senator is Vice-President of
Corporate Relations for Community/Kimball Medical Centers, and affiliate of the
St. Barnabas Health Care System.
To the Company's knowledge and based solely on a review of such materials as are
required by the Securities and Exchange Commission, no officer, director or
beneficial holder of more than ten percent of the Company's issued and
outstanding shares of Common Stock ("Beneficial Owner") has filed any forms and
reports required to be filed pursuant to Section 16(a) of the Securities and
Exchange Act of 1934, as amended (the "Exchange Act"), during the fiscal year
ended December 31, 1999; and no officer, director or Beneficial Holder has not
submitted any representation letter to the Company stating that they are not
subject to the filing requirements under Section 16 of the Exchange Act for
fiscal year 1999.
Item 10. Executive Compensation
No compensation has been awarded to, earned by, or paid to any of the named
executives or directors of the Company during the fiscal year ended 1999.
Item 11. Security Ownership of Certain Beneficial Owners and Management
(a) Certain Beneficial Owners of Common Stock
NONE
(b) Security Ownership of Management of Common Stock
-30-
<PAGE>
The following table sets forth the beneficial ownership of shares of the
Company's common stock as of March 15, 2000 (giving retroactive effect to the
three-for-one reverse stock split effected on or about December 20, 1999) for
each (a) director, (b) executive officer, and (c) person who is known to be the
beneficial owner of five percent or more of the outstanding shares of Common
Stock and all directors and executive officers as a group.
Name and Amount and Percentage
Address of Nature of of Class
Beneficial Beneficial
Owner (1) Ownership
Robert L. Waligunda(3) 856(4) .06
George E. Otten(2) -0- -0-
John R. Bruno(2)
Richard Brannon(3) -0- -0-
William C. Martucci(3) -0- -0-
William H. Wishinsky(3) -0- -0-
Ronald Ginsberg(2) -0- -0-
Robert W. Singer(2) -0- -0-
Casey Myhre(3) -0- -0-
-------- -----
All Directors and Executive 856 .06%
Officers as a Group
--------------
*Less than 1%
(1) Except as otherwise noted all shares are beneficially owned and the sole
voting and investment power is held by persons indicated.
(2) Former officer and/or director of the Company
(3) Executive officer and/or director of the Company
(4) Includes 400 shares pledged as collateral to a non-affiliate individual
Item 12. Certain Relationships and Related Transactions
In early 1997, a former officer of the Company introduced Gems to William C.
Martucci ("Martucci") at which time Gems began negotiations with Martucci to
effectuate a business combination with Martucci's businesses and Gems business
ventures. At that time, Gems controlled an 82.5% interest in the Zeus No. 1
Investments, a California General Partnership formed by the Company and Gems to
facilitate the rehabilitation, reclaimation and reopening of the Company's
mining ventures (the "Zeus Joint Venture").
However, during mid 1997, it had become apparent to the Company that Gems did
not possess the technical and financial resources required to bring the Franklin
Mines into operation as contemplated by the Zeus Joint Venture. It was also
during this time that the Company began discussions directly with Martucci with
respect to a possible business combination between his entities and the Company.
As a result of these discussions, on September 25, 1997, the Company entered
into a letter of intent with Martucci to acquire all of the outstanding shares
of certain entities owned by him, including US Mining, Inc. ("USM") in exchange
for 85% of the outstanding shares of stock of the Company. USM is a New Jersey
corporation engaged in the business of acquiring and holding mining properties
and related acquisition was consummated.
-31-
<PAGE>
Management believed that the financial support to be supplied by Mr. Martucci
pursuant to the Martucci letter of intent would be sufficient to fund the
Company prior to the consummation of the Transaction.
On November 13, 1997 USM entered into an agreement with Audrey Hayden to acquire
her interest in the 28 patented claims comprising the Hayden/Kennec Leases. See
Item 2 - Property - Hayden/Kennec Leases.
On November 25, 1997 USM acquired an aggregate of 82.5% interest in the Zeus
Joint Venture in exchange for the assumption of approximately $100,000 in
liabilities of Gems (the "Gems Liabilities"). USM thereafter simultaneously
assigned the acquired interest to the Company in exchange for the assumption of
the Gem's liabilities. The assignment effectively terminated the Zeus Joint
Venture giving the Company 100% control over its mining ventures.
On April 6, 1998, Martucci terminated the Letter of intent but continued to fund
the Company (the "Advances"). On March 9, 1998, the Company executed a Loan
Agreement and Promissory Note (the "USM Note") evidencing the terms upon which
the Company would repay the USM Advances and upon which USM would advance
additional funds to the Company on an "as needed" basis. The USM Note in the
principal amount of $955,756 at December 31, 1997 bore interest at a rate of 8%
per annum and was due and payable on May 4, 1998, but could be extended on a
month-to-month basis. The USM Note is secured by a first priority lien on
substantially all of the assets of the Company. As of December 31, 1999, the
Company owed USM $1,669,040 of which $1,470,295 is attributable to principal and
$198,745 to accrued unpaid interest on the USM Note.
On or about August 3, 1998, the Company entered into agreements with each of USM
(the "USM Agreement") and Martucci (the "POS Agreement"). Pursuant to the USM
Agreement, USM agreed to forgive the indebtedness of the Company evidenced by
the USM Note; release the security interests in the collateral of the Company
securing the USM Note and assign its rights to the Hayden-USM Purchase Agreement
in exchange for 42.5% of the issued and outstanding shares of the Company. Under
the terms of the POS Agreement, Martucci agreed to sell to the Company 100% of
the outstanding shares of POS and 100% of the assets in exchange for
approximately 42.5% of the issued and outstanding shares of the Company. The
Company intended to seek stockholders' approval of these transactions at its
Annual Meeting of Stockholders held in October 1998.
In August 1998, the Company filed a preliminary proxy statement with the
Securities and Exchange Commission (the "Commission") for its annual meeting of
stockholders, which included proposals to approve each of the USM Agreement and
the POS Agreement. Shortly after the filing of the preliminary proxy materials,
the Commission informed the Company that the staff of the Commission (the
"Staff") would be conducting a review of the proxy materials and the proposals.
The Company informed USM and Martucci of the Staff's inquiry and was thereafter
notified that both parties wished to terminate the agreements under the premise
that the Company could not secure stockholder approval of the transactions in a
timely manner.
On September 21, 1998, the Company received a letter from USM concerning the
monies loaned to the Company by USM, which included the monies owed to USM by
the Company pursuant to the terms of the USM Note and an additional $144,280
loaned to the Company subsequent to the date of the
USM Note. At a meeting of the Board of Directors of the Company on October 8,
1998, a negotiated settlement agreement was approved by the Board, whereby USM
agreed to convert the Company's
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<PAGE>
indebtedness to USM into shares of common stock of the Company at a conversion
price equal to 50% of the closing bid price as of the close of business October
7, 1998. The price of the Company's common stock at the close of business on
October 7, 1998 was $1.98, as adjusted per share. Therefore, the conversion rate
under the settlement agreement would be one share of common stock of the Company
for each $1.00, as adjusted of indebtedness of the Company to USM.
It was further agreed that the settlement plan would be implemented in a
two-step transaction. Approximately $306,160 of loans would be paid by
converting that portion into 309,252, as adjusted shares of common stock of the
Company resulting in USM holding approximately 19% of the total issued and
outstanding shares of common stock of the Company. The conversion of the
remaining indebtedness would be predicated upon either (i) stockholder approval
of the issuance of more than 20% of the Company's common stock in the aggregate
to USM at a discount to market price as required by the rules of corporate
governance promulgated by the NASDAQ Small Cap Market ("NASDAQ"), or (ii) the
issuance of a waiver by the NASDAQ excepting the Company for compliance with
this rule. USM also agreed that it would continue to provide the Company with
financing going forward as further inducement to consummate the settlement
agreement set forth above.
Due to the fact that the Company had already expended significant monies to
conduct a proxy solicitation for its annual meeting scheduled on October 12,
1998, the Company made application to NASDAQ for a waiver of the meeting
requirement described above.
On October 19, 1998, the Company made a formal application to NASDAQ in
accordance with Rule 4310(C)(25)(H)(ii) of the NASDAQ Stock Market for a waiver
of the requirement that the Company call a meeting of its stockholders to
approve the issuance of over 20% in the aggregate of its stock to USM at a price
below market price. The rule allows for a waiver of this requirement when, among
other things, a delay in securing stockholder approval would seriously
jeopardize the financial viability of the Company. On or about October 24, 1998,
the NASDAQ Stock Market contacted the Company and indicated that it was inclined
to deny the Company's application unless additional information was submitted
for review. The Company thereafter withdrew its application and re-opened
negotiations with USM. The Company sought to continue discussions with Martucci
in hopes of preventing a foreclosure on the USM Note. The Company was successful
in convincing Martucci to continue funding the Company in hopes that the Company
could begin operations and generate revenues to repay the USM Not.
Mr. Martucci was elected to the Board of Directors of the Company in October,
1998.
On or about June 21, 1999, the Company entered into a letter of intent with USM
to purchase substantially all of its assets in exchange for shares of common
stock of the Company equal to 69% of the issued and outstanding shares of common
stock. The letter of intent further contemplated the forgiveness of the USM Note
and release of the security therefore upon the closing of the transaction. On or
about October 5, 1999 USM notified WCM Capital, Inc. that it was withdrawing its
letter of intent.
On January 18, 2000, the Company, Martucci and USM entered into an agreement
whereby the Company agreed to acquire USM in exchange for 7,473,013 shares of
the Common Stock which is approximately 85% of the Company's common stock (the
"Transaction"). The terms of this agreement were negotiated between Mr. Martucci
and Mr. Waligunda and was approved by the Board of Directors of the Company. The
agreement may be terminated by unanimous consent of the parties, in the event of
a breach of the terms of
-33-
<PAGE>
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. Upon approval
of the proxy statement by the Commission the Company will submit the Transaction
to its shareholders for approval.
In March 2000, the Company announced that it has reached an agreement in
principal with Martucci to acquire Shoppers Online, Inc. and Freebees, Inc., two
related Internet companies 100% owned by him. Shoppers Online was in the process
of launching an on line shopping portal (www.shoppersonline.com) and incubator
for the development of business-to-business e-commerce. Freebees is 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. To memorialize our agreement, the Company and Martucci
executed a letter of intent on April 17, 2000. It was anticipated that the
Company and Martucci would amend the USM Stock Purchase Agreement to include
these Internet businesses as part of the stock for stock transaction
contemplated thereby.
After completing our investigation of Shoppers Online and Freebees, it became
evident that both Shoppers Online and Freebees were both in the developmental
stages and were not generating any revenues. Moreover, we believed that these
companies would require additional investments of capital before full-scale
operations could begin. At this point, the Company determined that the
acquisition of these companies would not add any value to our Company as neither
company could provide us with much needed revenues. Therefore, we terminated our
letter of intent and decided not to proceed with this transaction. However, we
remain committed to acquiring USM.
PART IV
Item 13. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Exhibits
The following documents are filed as exhibits herewith, unless otherwise
specified by an asterisk, and are incorporated herein by this reference:
Exhibit
Number Description of Exhibit
3.1 Amended and Restated Certificate of Incorporation filed with the
Delaware Secretary of State on December 4, 1995. (Incorporated by
reference, Annual Report on Form 10KSB for year ended December 31,
1995)
3.2 Amended and Restated By-Laws of the Company (Incorporated by
reference, Annual Report on Form 10-K for Year Ended December 31,
1994, Exhibit 3.2.)
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<PAGE>
3.3 Amendment to the Certificate of Incorporation filed with the
Secretary of State of Delaware on May 21, 1998.
3.4 Amendment to the Certificate of Incorporation filed with the
Secretary of State of Delaware on October 16, 1998.
3.5 Amendment to the Certificate of Incorporation filed with the
Secretary of State of Delaware on December 17, 1999.
4.1 Form of Indenture dated January 2, 1990 (Incorporated by reference,
Registration Statement on Form S-1, File No. 33-31418, Exhibit 4.1.)
10.1 Mining Lease and Option to Purchase, dated November 12, 1976, among
Davis I. And Audrey I. Hayden, husband and wife, and Dorothy L.
Kennec, a single woman and trustee for her children, and Gold
Developers and Producers Incorporated (Incorporated by reference,
Registration Statement on Form S-1, File No. 33-31418, Exhibit 10.1.)
10.2 Indenture, dated August 2, 1982, by and between the Company and David
I. and Dorothy I. Hayden. (Incorporated by reference, Registration
Statement on Form S-1, File No. 33-31418, Exhibit 10.2.)
10.3 Agreement dated August 2, 1982, by and between the Company and David
I. and Audrey I. Hayden. (Incorporated by reference, Registration
Statement on Form S-1, File. No. 33-31418, Exhibit 10.3)
10.5 Zeus Joint Venture Agreement, dated February 26, 1993 between the
company and Island Investment Co. (Incorporated by reference, Current
Report on Form 8-K dated July 19, 1993, File No. 0-9416, Exhibit (a)
filed as exhibit to Schedule 13D filed by Gems & Minerals Corp.)
10.8 Amendment to Zeus Joint Venture Agreement, dated as of August 31,
1993, by and between the Company and Island Investment Co. and Gems &
Minerals Corp. (Incorporated by reference, Current Report on Form
8-K, dated August 31,1993, File No. 0-9416, Exhibit (a)).
10.26 Promissory Note dated July 6, 1996 by the Company in favor of
Anderson Chemical Co. in the aggregate principal amount of $20,000.
(Incorporated by reference, Annual Report on Form 10-KSB for year
ended December 31, 1996, File No. 0-9416, Exhibit 10.26).
10.28 First Amendment to the Joint Venture Agreement of Zeus No. 1
Investments, a California general partnership, dated August 15, 1996.
(Incorporated by reference, Annual Report on Form 10-KSB for year
ended December 31, 1996, File No. 0-9416, Exhibit 10.28)
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<PAGE>
10.32 Amendment dated November 19, 1996, mining lease and Option to
Purchase, dated November 12, 1996, between the Company and Mrs.
Dorothy Kennec. (Incorporated by reference, Annual Report on Form
10-KSB for year ended December 31, 1996, File No. 0-9416, Exhibit
10.31).
10.34 Lease Extension Agreement dated November 21, 1997 between Dorothy L.
Kennec, individually and Dorothy L. Kennec, Trustee and the Company.
10.35 Assumption of Debt dated December 1, 1997 between the Company and
Gems & Minerals Corp.
10.36 Promissory Note dated March 5, 1998 between the Company and POS
Financial, Inc.
10.37 Termination Letter dated March 6, 1998 between William Martucci, POS
Financial, Inc. and US Mining, Inc. and the Company.
10.38 Letter of intent dated September 25, 1997, by and between the Company
and William C. Martucci (Incorporated by reference on Form 8-K dated
October 20, 1997, File No. 0-9416, Exhibit A).
10.39 Letter of intent dated June 21, 1999, by and between the Company and
U.S. Mining, Inc. (Incorporated by reference on Form 8-K dated June
24, 1999, File No. 0-9416).
10.40 Agreement dated January 2000, by and between the Company and US
Mining, Inc. (Incorporated by reference in Preliminary Proxy dated
February 22, 2000.
13 Proxy Statement to Stockholders of the Company for the fiscal year
ended December 31, 1994. Except for those portions of such Proxy
Statement to Stockholders, expressly incorporated by reference into
this Report, such Annual Report to Stockholders is solely for the
information of the Securities and Exchange Commission and shall not
be deemed a "filed" document. (Incorporated by reference, Annual
Report on Form 10-KSB for Year Ended December 31, 1995).
24.1 Consent of Gifford A. Dieterle, dated June 3, 1994, as an Expert with
respect to the geological reports dated December 7, 1993, and May 16,
1994 filed as supplemental information with the Company's Annual
Report on Form 10-K for the year ended December 31, 1994.
(Incorporated by reference, Annual Report on Form 10-K for Year Ended
December 31, 1993, File No. 0-9416, Exhibit 23.)
28.1 Maps and Geological Reports prepared by consultant Gifford A.
Dieterle dated December 7, 1993 and May 16, 1994. (Incorporated by
reference, Annual Report on Form 10-K for Year Ended December 31,
1993, File No. 0-9416, Exhibit 23.)
* Filed herewith
Reports on Form 8-K
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WCM CAPITAL, INC.
(Formerly FRANKLIN CONSOLIDATED MINING CO., INC.)
/s/ Robert Waligunda
October 20, 2000
--------------------------------------
Robert Waligunda, President/Treasurer
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Robert Waligunda
------------------------ President, Treasurer October 20, 2000
Robert Waligunda and Director
/s/ Richard Brannon
------------------------ Vice President/Secretary October 20, 2000
Richard Brannon
/s/ George Otten
------------------------ Vice President October 20, 2000
George Otten
/s/ William C. Martucci Director October 20, 2000
------------------------
William C. Martucci
/s/ Ronald Ginsberg Former Director October 20, 2000
------------------------
Ronald Ginsberg
/s/ Robert W. Singer Former Director October 20, 2000
------------------------
Robert W. Singer
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