FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the Fiscal Year ended: DECEMBER 31, 1996
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from __________________ to _____________
Commission file number 1-355
DRAGON MINING CORPORATION
(Exact name of registrant as specified in its charter)
UTAH 87-0159350
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
107 WEST WADE, SUITE 7, P.O. BOX 9, PAYSON, ARIZONA 85547-0009
(Address of principal executive offices)
Registrant's telephone number, including area code: (520) 474-9151
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
on which registered
COMMON STOCK $.001 PAR VALUE
NONE
Securities registered pursuant to section 12(g) of the Act:
N/A
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for at least the past 90 days.
Yes X No
Aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 22, 1997: N/A (SEE ITEM 5)
Number of shares outstanding of registrant's common stock, $.001 par value, as
of March 22, 1997: 23,143,826
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (S 229.405 of this chapter) is not contained herein, and will
not 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-K.
[X] [Added in Release No. 34-28869 (84,709), effective May 1, 1991, 56 F.R.
7242.]
Exhibit index on consecutive page ___ Page 1 of pages
<PAGE>
INDEX
PART I
Page
Item 1. Business 3
Item 2. Properties 5
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 6
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 6
Item 6. Selected Financial Data 7
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 8. Financial Statements and Supplementary Data 8
Item 9. Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure 8
PART III
Item 10. Directors and Executive Officers of the Registrant 8
Item 11. Executive Compensation 9
Item 12. Security Ownership of Certain Beneficial Owners
and Management 10
Item 13. Certain Relationships and Related Transactions 10
PART IV
Item 14. Exhibits, Financial Statements Schedules and Reports
on Form 8-K 11
2
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL AND HISTORICAL BACKGROUND
The Company was incorporated in 1911 in Utah as Dragon Consolidated Mining
Company and operated profitably for many years in the Tintic Mining District of
Utah. In January 1985, the Company changed its name to Dragon Mining
Corporation. For a substantial period, the Company realized the major portion of
its income in the form of royalties from clay mining operations conducted by
lessees within its "Dragon Pit" near Eureka, Utah. (See Item 2. PROPERTIES.)
From July 1, 1977 to March 1983, the Company did not conduct operations. From
May 1940 to October 1984, the Company was controlled by North Lily Mining
Company, a subsidiary of the Anaconda Company from June 1925 to March 1983. In
March 1983, Claude K. Lee and others acquired direct control of North Lily
Mining Company and indirect control of the Company.
Due to a failure to file a 1992 Utah annual report the Company was
mistakenly dissolved by the State of Utah. The Company has been reincorporated.
During 1986, North Lily Mining Company ("North Lily") consummated the
acquisition of 4,725,923 shares of the Company's common stock in exchange for
shares of North Lily common stock, thereby increasing North Lily's ownership of
the Company from 20.5% to 78.4%.
During May 1993 North Lily completed the sale of 6,055,836 shares,
representing 74.4% of the issued and outstanding shares, of the Company's common
stock to Van-Cap Equities Ltd.("Van-Cap").
On June 24, 1994 Van-Cap sold 6,055,836 of the Company's common stock to
Marbella Capital Corporation ("Marbella").
There are no current operations.
The Company has no full-time employees.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
No information is presented as to industry segments. The Company has been
primarily engaged in a single line of business: the acquisition, exploration,
development of mineral properties and production therefrom.
3
<PAGE>
GOVERNMENT REGULATIONS
The Company's mining, processing and exploration activities are subject to
various laws governing the protection of the environment, prospecting,
development, production, exports, taxes, labor standards, occupational health,
waste disposal, toxic substances, mine safety and other matters. Mining
operations and exploration activities are also subject to substantial regulation
under these laws by governmental agencies.
Failure to comply with applicable laws and regulations may result in
orders being issued that may cause operations to cease or be curtailed or may
require installation of additional equipment. Violators may be required to
compensate those suffering loss or damage by reason of violations and may be
fined if convicted of an offense under such legislation.
The Company believes it is in compliance with all material laws and
regulations applicable to it or its prior operations.
Additional legislation or amendments may be proposed from time to time that
might affect the Company's business. The Company is unable to predict in advance
which proposals may be enacted or their effective dates. Such changes could,
however, require increased capital or operating expenditures or both, and could
prevent or delay certain operations by the Company.
Outlined below are some of the more significant aspects of governmental
controls and regulations which materially affect the Company.
The Company is subject to federal, state and provincial income taxes, state
and local franchise taxes, personal property taxes and state severance taxes.
State severance taxes vary between the states and within a single state. The
amount of the tax, based on a percentage of the value of the mineral being
extracted, may vary from mineral to mineral. Operations are subject to taxation
by each locality in which mineral properties are owned or business is done.
Because many state and local tax laws are not uniform, the Company runs a risk
of double taxation on portions of its income by various jurisdictions. This may
adversely effect earnings, if any.
ENVIRONMENTAL REGULATIONS
Legislation and implementing regulations adopted or proposed by the United
States Environmental Protection Agency, the Bureau of Land Management ("BLM")
and comparable agencies in various states directly and indirectly affect the
mining industry in the United States. These laws and regulations address
potential contamination of air, soil and water from mining operations. In
particular, legislation such as the Federal Water Pollution Control Act, the
Comprehensive Environmental Response and the Compensation and Liability Act
impose effluent
4
<PAGE>
standards, new source performance standards, air quality and emission standards,
waste disposal requirements and other requirements with respect to present, and
in some cases past, mining and mineral processing, including gold mining.
U.S. mine operators must comply with the Federal Mine Safety and Health
Act, which is enforced by the Mine Safety and Health Administration ("MSHA"), an
agency within the Department of Labor. All mines, both underground and surface,
are subject to inspections by MSHA. The Occupational Safety and Health
Administration also has jurisdiction over safety and health standards not
covered by the Federal Mine Safety and Health Act, although there are areas
where the authority of both administrative agencies overlap.
Existing laws and regulations with respect to the reclamation of mining
operations are in place and may necessitate substantial planning and bonding
requirements.
The Company may be required to prepare and present to federal, state,
provincial or local authorities data pertaining to the effect or impact that any
proposed exploration for, or production of, minerals may have upon the
environment.
It may be anticipated that future legislation will significantly emphasize
the protection of the environment, and that as a consequence, the activities of
the Company may be more closely regulated to further the cause of environmental
protection. Such legislation, as well as future interpretation of existing laws,
may require substantial increases in equipment and operating costs to the
Company and delays, interruptions, or a termination of operations, the extent of
which cannot now be predicted.
EMPLOYEES AND FACILITIES
As of March 22, 1997, the Company had no full-time employees. The Company
has the following officers: Thomas J. Ian Wright, Chairman; Thomas L. Crom,
President; Nick DeMare, Secretary and Treasurer.
Dragon's office at 107 West Wade, Suite 7, Payson, Arizona is leased.
ITEM 2. PROPERTIES
DRAGON PIT
The Company no longer owns the Dragon Pit or any other property in the
state of Utah. This property was was sold to North Lily Mining Company in
exchange for the cancellation of all debt to North Lily.
ITEM 3. LEGAL PROCEEDINGS
None
5
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Dragon's common stock has traded on the over-the-counter market for
approximately 60 years. The range of high and low bid prices for each fiscal
quarter during the two most recently completed fiscal years and the current
fiscal year is as follows:
1996 HIGH LOW
First quarter $0.10 $0.01
Second quarter $0.10 $0.01
Third quarter $0.10 $0.01
Fourth quarter $0.10 $0.01
1995 HIGH LOW
First quarter $0.10 $0.01
Second quarter $0.10 $0.01
Third quarter $0.10 $0.10
Fourth quarter $0.10 $0.10
On March 22, 1997, the high bid price of the common stock was $0.10 per
share.
The above bid quotations reflect inter-dealer prices, without retail
mark-up, mark-down, or commission and may not necessarily represent actual
transactions.
As of December 31, 1997, there were 313 record holders of Dragon's common
stock.
In the past ten (10) years Dragon has not paid or declared any cash
dividends and does not anticipate paying dividends for the foreseeable future.
It is expected that any net income will be retained by Dragon for the
development of its business.
6
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
DECEMBER 31,
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $ 3,486 $ 0 $0 $ 177 $ 221
Net (loss) $3,285 $ (829) $(1,246) $(399) $(8,689)
per share $ .01 $ (.01) $(.01) $ (.01) $ (.01)
Total assets $ 499 $ 379 $ 259 $ 14,825 $ 9,869
Shareholder's
Equity ($2,099,601) $(2,100,430) $(2,101,676) $(2,087,075) $(2,095,764)
Cash dividends
declared $ -0- $ -0- $ -0- $ -0- $ -0-
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Dragon Mining Corporation (the Company) was incorporated in 1911 and
operated as a mining exploration company until 1977. The Company has not
received any revenue from planned principal operations since 1977 and has
primarily been engaged in the development of plans and acquisitions of assets
for its proposed mining and explorations operations. Accordingly, the Company is
considered to be in the development stage.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, 1995 and 1994 the Company had working capital
deficiencies of $2,095,764 , $2,087,075 and $2,101,676 respectively.
CORPORATE PLANS FOR 1997 AND BEYOND
The Company is attempting to acquire additional assets by issuing
additional stock. It is also continuing negotiations with its major creditor,
who is also its shareholder, to restructure its debt.
There is no assurance that these efforts will be successful.
During the year ended December 31, 1995 the Company issued 15,000,000
shares for $15,000 to Marbella Capital Corp. ("Marbella"). Marbella increased
its ownership from 55.7% to 84.4% as result of this placement.
RESULTS OF OPERATIONS
1996 COMPARED TO 1995
The Company activities were limited to maintaining its status as a public
company which generated a net loss of $(8,689) compared to a loss of $( 399) in
1995.
7
<PAGE>
1995 COMPARED TO 1994
The Company had very little activity resulting in just $576 of general and
administrative expenses in 1995 compared to $1,246 in 1994. As a result of a
private placement the Company's cash increased which resulted in interest income
of $177.
1994 COMPARED TO 1993
The Company had very little activity resulting in just $1,246 of general
and administrative expenses in 1994 compared to $829 in 1993. The marketable
securities had all been sold in 1992.
IMPACT OF INFLATION
Dragon will be affected by inflation because market value of its potential
products (gold and silver) tends to fluctuate with inflation. Other major costs
should not increase at a rate in excess of inflation.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements are filed under this Item beginning
on page F-1 the financial statements schedules required under Regulation S-X are
filed pursuant to Item 14 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names and ages of all directors and
executive officers of the Company as of the date of this report, indicating all
positions and offices with the Company held be each person:
<TABLE>
<CAPTION>
NAME AGE SINCE POSITION AND OFFICE
<S> <C> <C> <C>
Thomas J.Ian Wright 68 1994 Chairman of the Board of Directors
Anton R. Hendriksz 50 1994 Director
Thomas L. Crom 41 1986 President, Chief Executive Officer and
Director.
Nick DeMare 42 1994 Secretary, Treasurer, Chief Financial Officer
and Director
</TABLE>
8
<PAGE>
No family relationships exist between the executive officers of the
registrant. No arrangements or understandings exist between any executive
officer and any other person appointed by which the executive officer was
elected or appointed.
The directors of the Company are elected to hold office until the next
annual meeting of shareholders and until their respective successors are duly
elected and qualify. Officers of the Company are elected annually by the Board
of Directors and hold office until their successors are duly elected and
qualify.
THOMAS J. IAN WRIGHT, Chairman of the Board of Directors since June 1994,
has director of European operations for Barrington Communications Group since
1992. Mr. Wright is also a director of several other mining companies. From 1977
through 1992 he was a mining consultant for Laing & Cruickshank a stock
brokerage firm based in the United Kingdom.
THOMAS L. CROM, President and a Director since February 1988. Mr. Crom was
President of North Lily Mining Company, a publicly traded mining company, until
October 1993. Mr Crom worked at North Lily in various positions from July 1988
until he resigned in October 1993 to establish a management company called
Eureka Ventures, Inc. Mr. Crom is President of Eureka Ventures,Inc. Eureka is a
management consulting firm which provides services to the mining industry. Mr.
Crom is a certified public accountant and has a masters degree in business. He
has been involved in the mining business for 14 years.
NICK DEMARE, a director since 1994 is president of a management company, Chase
Management, which is based in Vancouver Canada. In addition he serves as
director of various other public companies. Mr DeMare is a Chartered Accountant
and has been involved in the mining business for 13 years.
ANTON R. HENDRIKSZ, a director since 1994, is Chairman of Eureka Ventures a
management company which provides services to the mining industry. Mr. Hendriksz
was Chairman of North Lily Mining Company, a publicly traded company, from 1991
until August 1993. Mr Hendriksz had been with North Lily since 1987. Mr.
Hendriksz is a chemical engineer and has been involved in the mining business
for 25 years.
ITEM 11. EXECUTIVE COMPENSATION
The Company has no paid employees and Directors do not receive any
compensation for serving as directors.
To provide incentive compensation to officers and key employees of the
Company, the shareholders of the Company adopted an Incentive Stock Option Plan
(the "Plan") on December 18, 1994. The Plan provides for the granting, in the
discretion of the Company, of options (the "Options") to purchase up to 300,000
shares of the Company's common stock. The Options are immediately exercisable at
a price which will not be less than the fair market value of the common stock on
the date of grant, or 110% of such fair market value if the amount of stock
owned by an Option holder is more than 10% of the total combined voting power of
all classes of the capital stock of the Company as of the date of grant. the
Options are exercisable for a period of up to ten years from the date of grant.
The Plan expired on October 31, 1994.
Under this plan, there are outstanding Options to purchase a total of
150,000 shares of
9
<PAGE>
common stock, all of which were granted during 1988 as follows:
<TABLE>
<CAPTION>
Number of shares Exercise price Expiration
OPTIONEE COVERED BY OPTIONS PER SHARE DATE
<S> <C> <C> <C>
Thomas L. Crom 150,000 $0.02 03/20/98
</TABLE>
The Company is under no obligation to register or assist any optionee in
registering either the Options or the Option Stock under the federal securities
laws or any state securities laws. Both the Options and all Option Stock will be
"registered securities" as defined in Rule 144 of the General Rules and
Regulations of the Securities Act of 1933 (the "Act"), and may not be offered
for sale, sold, or otherwise transferred except pursuant to an effective
registration statement under the Act or pursuant to an exemption to the
satisfaction of the Company. Accordingly, all certificates evidencing shares
covered by the Options and any securities issued and replace or exchanged
therefor, will bear a restrictive legend to this effect.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth information, as of March 22, 1997, with
respect to the beneficial ownership of the Company's common stock by each person
known by the Company to be the beneficial owner of more than five percent of the
outstanding common stock, and by directors and officers of the Company, both
individually and as a group:
<TABLE>
Shares owned
<CAPTION>
BENEFICIAL OWNERS BENEFICIALLY PERCENT OF CLASS
----------------- ------------ ----------------
<S> <C> <C>
Thomas J. Ian Wright 1,513,959 6.54%
128 Limmer Lane
Felpham,W. Bogner Regis
W. Sussex, England
Marbella Capital Corp.(1)<F1> 19,541,877 84.44%
1090 W. Georgia Street
Suite 1395
Vancouver, B.C. Canada
Thomas L. Crom 150,000(2)<F2> 1.8%
<FN>
Based on 23,143,826 shares outstanding where the persons listed on this
table have the right to obtain additional shares within 60 days from March 23,
1997. These additional shares are deemed to be outstanding for the purpose of
the computing securities of the class owned by such persons, but are not deemed
to outstanding for the purpose of computing the percentage of class for any
other persons.
<F1>
(1) Marbella Capital Corp. is a privately owned Canadian corporation is owned 40% by Anton
R. Hendriksz, 30% by Nick DeMare and 30% by the 1993 Crom Living Trust.
<F2>
(2) Includes 150,000 shares issuable upon exercise of an option. (See Item 11. EXECUTIVE
COMPENSATION).
</FN>
</TABLE>
10
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
At December 31, 1995 the amounts owed to Marbella were $2,100,000.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
A) The following documents are filed as part of this report:
1. Financial Statements:
Report of Independent Accountants
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
2. Financial Statements Schedules:
Schedule V - Property, Plant, and Equipment
Schedule VI - Accumulated Depreciation and
Amortization of Property, Plant and
Equipment
All other schedules have been omitted because they are not required, are
inapplicable, or the information is otherwise included in the financial
statements or notes thereto.
3. Exhibits:
Form 10-K
Regulation consecutive
S-K NUMBER EXHIBITS PAGE NUMBER
11
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
DRAGON MINING CORPORATION
March 22, 1997 By: /S/THOMAS L. CROM
Thomas L. Crom
President, Chief executive
officer and Director
Pursuant to the requirements of the Securities 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 date indicated.
March 22, 1997 /S/THOMAS J. IAN WRIGHT
-----------------------
Thomas J. Ian Wright, Chairman of the
Board of Directors
March 22, 1997 /S/THOMAS L. CROM
Thomas L. Crom, President and
Director
(Principal Executive Officer)
March 22, 1997 /S/NICK DEMARE
Nick DeMare, Secretary, Treasurer
(Principal Financial Officer)
and Director
March 22, 1997 /S/ANTON R. HENDRIKSZ
Anton R. Hendriksz, Director
12
<PAGE>
DRAGON MINING CORPORATION
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED FINANCIAL STATEMENTS
of an inactive Registrant per SEC 50456 Rule 3-11
for the years ended December 31, 1996, 1995 and 1994
and period from January 1, 1978 through December 31, 1996
<PAGE>
<TABLE>
DRAGON MINING CORPORATION
BALANCE SHEETS, DECEMBER 31, 1996 AND 1995
<CAPTION>
ASSETS 1996 1995
---- ----
<S> <C> <C>
Current Asset:
Cash and Cash equivalents $ 9,869 $ 14,825
---------- -------------
Total current assets $ 9,869 $ 14,825
Plant and equipment, net 0 0
Mineral properties, net 0 0
---------- -------------
Total asset $ 9,869 $ 14,825
========== =============
LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities:
Accounts payable $ 5 ,633 1,900
Due to Related Party 2,100,000 2,100,000
----------- ---------
Total current liabilities 2,105,633 2,101,900
----------- ---------
Total liabilities 2,105,633 2,101,900
----------- ---------
Shareholders' deficit:
Common stock, $001 par value; authorized 25,000,000; issued 23,143,826
shares as of December 31, 1996
and 1995 respectively 23,144 23,144
Additional paid-in Capital 3,103,889 3,103,889
Accumulated Deficit (5,222,797) (5,214,108)
----------- -----------
Total shareholders' equity (2,095,764) (2,087,075)
----------- -----------
Total liabilities and shareholder's equity $ 9,869 $ 14,825
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE>
<TABLE>
DRAGON MINING CORPORATION
STATEMENTS OF OPERATION
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenue:
Interest income $ 221 $ 177 $ 0
------- ------- ---------
Total Revenue 221 177 0
Operating expense:
General and administrative expenses 8,910 576 1,246
----- --------- -----------
Total operating expenses 8,910 576 1,246
Net Income (Loss) $(8,689) $(399) $ (1,246)
======== ====== ============
Income (Loss) per common share $ (.01) $ (.01) $ (.01)
============ =========== ============
Weighted average shares outstanding 23,143,826 13,768,826 8,143,826
========== ========== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
<TABLE>
DRAGON MINING CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
Deficit
Accumulated
Additional during the
COMMON STOCK Paid-in Development
SHARES AMOUNT CAPITAL STAGE TOTAL
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1978 1,875,000 $1,875 $ 868,232 $ (338,814) $ 531,293
Dividends paid in 1982
($.27 per share) -0- -0- (167,436) -0- (167,436)
Common stock issued:
1982 418,000 418 149,582 -0- 150,000
1983 4,620,000 4,620 1,640,088 -0- 1,644,708
1984 1,230,826 1,231 437,173 -0- 438,404
Capital contribution in 1986 -0- -0- 176,250 -0- 176,250
Net loss ten years
ended December 31, 1987 -0- -0- -0- (4,080,804) (4,080,804)
---------- -------- --------- ----------- -----------
Balance, December 31, 1987 8,143,826 8,144 3,103,889 (4,419,618) (1,307,585)
Net (loss) year ended
December 31, 1988 -0- -0- -0- (999,912) (999,912)
Net (loss) year ended
December 31, 1989 -0- -0- -0- (681,585) (681,585)
Net (loss) year ended
December 31, 1990 -0- -0- -0- (474,867) (474,867)
Net income year ended
December 31, 1991 -0- -0- -0- 1,361,063 1,361,063
Net income year ended
December 31, 1992 -0- -0- -0- 3,285 3,285
Net (loss) year ended
December 31, 1993 -0- -0- -0- (829) (829)
Net (loss) year ended
December 31, 1994 -0- -0- -0- (1,246) (1,246)
Net (loss) year ended
December 31, 1995 -0- -0- -0- (399) (399)
Common stock issued in 1995 15,000,000 15,000 -0- -0 - 15,000
Net (loss) year ended
December 31, 1996 -0- -0- -0- (8,689) (8,689)
------- ------ ----- ------- -------
Balance, December 31, 1996 23,143,826 23,144 3,103,889 (5,222,797) (2,095,764)
========== ====== ========= =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
<TABLE>
DRAGON MINING CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
Cumulative
1996 1995 1994 PERIOD
---- ---- ---- ------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) (8,689) (399) (1,246) (4,883,983)
Adjustments to reconcile net (loss) to net cash provided by operating
activities:
Depreciation -0- -0- -0- 328,376
Loss on sale of equipment -0- -0- -0- 188,562
Realized loss on sale of securities -0- -0- -0- 40,515
Unrealized loss on securities -0- -0- -0- 32,620
Deferred income tax benefit -0- -0- -0- (75,000)
Write-down and abandonment of
mineral properties -0- -0- -0- 1,834,127
Write-down and abandonment of equipment -0- -0- -0- 1,166,102
(Increase) decrease of receivables -0- -0- -0- 12,746
(Decrease) increase of liabilities 3,733 (35) 1,126 1,035,850
------ ---- ---------
Total adjustments 3,733 (35) 1,126 4,563,898
------ ---- ----- ---------
Net cash provided by operating
activities (4,956) (434) (120) (320,085)
------- ----- ----- -----------
Cash flows from investing activities:
Sale of marketable equity securities -0- -0- -0- 76,866
Sale of certificates of deposits -0- -0- -0- 828,024
Proceeds from sale of equipment -0- -0- -0- 77,500
Acquisition of office equipment -0- -0- -0- (20,335)
Construction of mill and equipment -0- -0- -0- (2,099,058)
Acquisition and exploration of mineral
properties -0- -0- -0- (1,909,127)
--- --- --- -----------
Net cash used in investing
activities -0- -0- -0- (3,046,130)
--- --- --- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock -0- 15,000 -0- 2,248,112
Payments of debt -0- -0- -0- (1,081,259)
Proceeds from issuance of debt -0- -0- -0- 2,705,123
Dividends paid -0- -0- -0- (506,250)
Net cash provided by
financing activities -0- 15,000 -0- 3,365,726
--- ------ --- ----------
Net increase (decrease) in cash (4,956) 14,566 (120) (489)
Cash and cash equivalents at beginning
of year 14,825 259 379 40,721
------- --- --- -------
Cash and cash equivalents at end of year 9,869 14,825 259 41,210
===== ====== === ======
Supplemental schedule of noncash investing and financing activities
Cash paid during the year for:
Interest -0- -0- -0- -0-
-0- -0- -0- -0-
=== === === ===
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
DRAGON MINING CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
OPERATIONS AND BASIS OF PRESENTATION:
Dragon Mining Corporation (the Company) was incorporated in Utah in
1911 and operated as a mining and mineral exploration company until
1977. The Company has not received any revenue from operations since
1977 and has been primarily engaged in the development of plans and
acquisition of assets for its proposed mining and exploration
operations. Accordingly, the Company is considered to be in the
development stage, and cumulative amounts required to be presented by
development stage enterprises have been presented since January 1, 1978
in the accompanying financial statements.
Due to a failure to file a 1992 Utah annual report the Company was
mistakenly dissolved by the State of Utah. Subsequently the Company has
been reincorporated in the State of Utah.
The Company's financial statements have been presented on the basis
that it is a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of
business. The Company has incurred substantial losses during the last
three years. The Company's current liabilities exceeded its current
assets by $2,095,764 at December 31, 1996. The Company is continuing
discussions with its major creditor and shareholder to restructure the
Company's debt. Continued existence of the Company is dependent upon
the Company's ability to perform the above is uncertain and, therefore,
the Company may be unable to continue in existence.
CASH EQUIVALENTS:
The Company defines cash equivalents as all short-term, highly liquid
investments with original maturity dates less than 90 days.
MARKETABLE SECURITIES:
Current marketable equity securities are carried at the lower of their
aggregate cost or market value. Net realized gains and losses on
security transactions are determined on the specific identification
cost basis. Unrealized losses net of unrealized gains are included in
the determination of net income.
Continued
F-6
<PAGE>
DRAGON MINING CORPORATION
NOTES TO FINANCIAL STATEMENT, CONTINUED
PLANT AND EQUIPMENT:
Plant and equipment is carried is carried at cost. Mill and equipment
are depreciated using the straight-line method over their estimated
useful lives of 5 to 15 years or the units-of-production method based
on estimated tons of ore reserves if the equipment is located at a
producing property with a shorter economic life. Mining equipment is
being depreciated using the straight-line method over their estimated
useful life of 3 to 15 years or the units-of-production method based on
estimated tones of ore reserves if the equipment is located at a
producing property with a shorter economic life. Office equipment and
fixtures are being depreciated using the straight-line method over
their estimate useful lives of 3 to 10 years. When such assets are sold
or otherwise disposed of, the costs and accumulated depreciation are
removed from the accounts, and any resulting gains or losses are
charged to operations.
MINERAL PROPERTIES:
Direct costs related to the acquisition, exploration and development of
mineral properties held or controlled by the Company are deferred on an
individual property basis until the viability of a property is
determined. General exploration costs are expensed as incurred. When a
property is placed in commercial production, such deferred costs are
depleted using the units-of-production method. 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
metal 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.
RECLAMATION COSTS:
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.
Continued
F-7
<PAGE>
DRAGON MINING CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
INCOME TAXES:
Certain expenses charged against income for financial reporting
purposes are deductible in other periods for income tax purposes.
Deferred taxes are provided for such timing differences and are
calculated by the net-change method.
LOSS PER COMMON SHARE:
Loss per common share for each of the three years presented do not
include the effect of outstanding stock options, as their effect is
antidilutive.
2. PLANT AND EQUIPMENT:
Plant and equipment consists of the following at December 31, 1996 and
1995:
<TABLE>
1996 1995
-------- -------
<S> <C> <C>
Mining equipment $ -0- $280,014
Office equipment and fixtures -0- 20,535
-------- -------
-0- 300,549
Less accumulated depreciation (0) (300,549)
-------- ---------
Mining equipment, net $ 0 $ 0
======== =========
</TABLE>
3. MINERAL PROPERTIES:
The Company owned the Dragon Pit which consists of a total of 380 acres
in Juab County, Utah. The original cost of this property of $1,769,972
was fully amortized in prior years. This property was sold in 1996.
The Company's investment in mineral properties as of December 31, 1996
and 1995 is as follows:
<TABLE>
1996 1995
------------ ----------
<S> <C> <C>
Mineral properties $ -0- $1,769,972
Less accumulated amortization -0- (1,769,972)
------------ -----------
Mineral properties, net $ 0 $ 0
============ ===========
</TABLE>
Continued
F-8
<PAGE>
DRAGON MINING CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. NOTES PAYABLE TO RELATED PARTY:
Notes payable to related party $2,100,000 bear interest at 8% as of
December 31, 1996 and 1995 and is due on demand (see also note 7).
<TABLE>
1996 1995
---------- ----------
<S> <C> <C>
Demand note to related party $2,100,000 $2,100,000
---------- ----------
$2,100,000 $2,100,000
</TABLE>
5. INCOME TAXES:
For U.S. income tax reporting purposes, the Company has net operating
loss carry-forwards of approximately $5,092,336 expiring from the year
2000 to the year 2016, as of the year ended December 31, 1996.
Utilization of these net operating losses is restricted under Internal
Revenue Code Section 382.
6. STOCK OPTION AGREEMENTS:
On December 18, 1984 the shareholders adopted and approved an incentive
stock option plan. The plan provides for officers and key employees of
the Company to purchase up to 300,000 shares of the Company's
unregistered common stock. The options granted under the plan are
immediately exercisable at the fair market value of free trading stock
on the date of grant or 110% of such value if the optionee owns more
than 10% of the combined voting power of all classes of the Common
stock as of the grant date. The options are exercisable over a period
not longer than ten years from the date of grant.
Under this plan, the Company granted options to purchase 150,000 shares
of unregistered common stock at an exercise price of $0.02 per share to
a member of the Board of Directors in 1988. As of December 31, 1995
150,000 of the options were outstanding and exercisable, and they
expire on March 20, 1998, ten years from the date of grant.
Continued
F-9
<PAGE>
DRAGON MINING CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
7. RELATED PARTY TRANSACTIONS:
During the year ended December 31, 1996:
-The Company was provided management, consulting and office
administration by its majority shareholder at a cost of
$4,800.
-Interest expense of $168,000 on the note payable to related
party was cancelled.
During the year ended December 31, 1995:
-The Company was provided management, consulting and office
administration at no cost by its majority shareholder.
-Interest expense of $168,000 on the note payable to related
party was cancelled.
During the year ended December 31, 1994:
-The Company was provided management, consulting and office
administration at no cost by its majority shareholder.
-Interest expense of $168,000 on the note payable to related
party was cancelled.
Continued
F-10
<PAGE>
<TABLE>
DRAGON MINING CORPORATION
SCHEDULE VI
ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND
EQUIPMENT FOR THE YEARS ENDED DECEMBER 31, 1996,
1995 AND 1994
<CAPTION>
Balance at
Beginning Other Balance at
CLASSIFICATION OF YEAR ADDITIONS RETIREMENT CHANGES END OF YEAR
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Office Equipment $ 20,535 -0- (20,535) -0- $ -0-
Mining and Milling Equipment $280,214 -0- (280,214) -0- $ -0-
-------- ---- ----------- ------ ---------
Total $300,549 -0- (300,549) -0- $ -0-
======== ==== ========== ====== =========
Year ended December 31, 1995:
Office Equipment $ 20,535 -0- -0- -0- $ 20,535
Mining and Milling Equipment $280,214 -0- -0- -0- $280,214
-------- ----- ----- ------ --------
Total $300,549 -0- -0- -0- $300,549
======== ===== ===== ====== ========
Year ended December 31, 1994:
Office Equipment $ 20,535 -0- -0- -0- $ 20,535
Mining and Milling Equipment $280,214 -0- -0- -0- $ 280,214
-------- ----- ----- ----- --------
Total $300,549 -0- -0- -0- $ 300,549
======== ===== ===== ===== ========
</TABLE>
Continued
F-11
<PAGE>
<TABLE>
DRAGON MINING CORPORATION
SCHEDULE V
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<CAPTION>
Balance at
Beginning Other Balance at
CLASSIFICATION OF YEAR ADDITIONS RETIREMENT CHANGES END OF YEAR
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Office Equipment $ 20,535 -0- (20,535) -0- $ -0-
Mining and Milling Equipment $ 280,214 -0- (280,214) -0- $ -0-
--------- --- --------- ---- ---------
Total $ 300,549 -0- (300,549) -0- $ -0-
========= === ========= === =========
Year ended December 31, 1995:
Office Equipment $ 20,535 -0- -0- -0- $ 20,535
Mining and Milling Equipment $280,214 -0- -0- -0- $280,214
-------- --- --- --- --------
Total $300,549 -0- -0- -0- $300,549
======== === === === ========
Year ended December 31, 1994:
Office Equipment $ 20,55 -0- -0- -0- $ 20,535
Mining and Milling Equipment $280,214 -0- -0- -0- $280,214
-------- --- --- --- --------
Total $300,549 -0- -0- -0- $300,549
======== === === === ========
</TABLE>
Continued
F-12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 9,869
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,869
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,869
<CURRENT-LIABILITIES> 2,105,633
<BONDS> 0
0
0
<COMMON> 23,144
<OTHER-SE> (5,222,797)
<TOTAL-LIABILITY-AND-EQUITY> 9,869
<SALES> 0
<TOTAL-REVENUES> 221
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,910
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (8,689)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,689)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,689)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
