SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(C) OF THE SECURITIES
EXCHANGE ACT OF 1934
Check the appropriate box:
[X] Preliminary Information Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14c-5(d)
(2))
[ ] Definitive Information Statement
DRAGON MINING CORPORATION
(Name of Registrant As Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
1) Title of each class of securities to which transaction
applies:______________________________________________
2) Aggregate number of securities to which transaction
applies:______________________________________________
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth
the amount on which the filing fee is calculated and
state how it was determined):
------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------
5) Total fee paid:
------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:_______________________________
2) Form, Schedule or Registration Statement No.:_________
3) Filing Party:_________________________________________
4) Date Filed:___________________________________________
<PAGE>
DRAGON MINING CORPORATION
- --------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 31, 1998
- --------------------------------------------------------------------------------
The Annual Meeting of the Shareholders of Dragon Mining Corporation (the
"Company") will be held on Friday, July 31, 1998 at 10:00 A.M. (local time) at
Suite 7, 107 West Wade Lane, Payson, Arizona 85547- 0009 for the following
purposes:
(1) To elect four members of the Board of Directors to hold
office until the next annual meeting of shareholders, or
until their successors are duly elected and qualify;
(2) To amend the article of incorporation to increase the
number of Authorized Common Shares from 25,000,000 to
50,000,000 shares;
(3) To ratify the issuance of 15,000,000 shares to Marbella
Capital Corp. at a deemed price of $0.001 per share for
a total of $15,000, which was approved by the Company's
sole acting director, Mr. Thomas Crom, on July 11, 1995;
(4) To approve the issuance of 21,000,000 shares to Marbella
Capital Corp. at a deemed price of $0.10 per share
(prior to the reverse-split) to retire debt of
$2,100,000;
(5) To consider and act upon a Plan of Recapitalization to
reverse-split the outstanding Common Stock by changing
each 10 issued and outstanding shares into one issued
and outstanding share of Common Stock;
(6) To amend the articles of incorporation to change the
name of the Company from "Dragon Mining Corporation" to
"Dragon Diamond Corporation";
(7) To approve and adopt the Company's 1998 Stock Option
Plan;
(8) To approve and adopt the Company's 1998 Restricted Stock
Plan; and
(9) To transact such other business as properly may come
before the meeting.
Only shareholders of record at the close of business on June 30,
1998 will be entitled to vote at the meeting. The transfer books of the Company
will not be closed.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
By order of the Board of Directors:
/s/Aubrey L. McGinnis
Aubrey L. McGinnis, Secretary
Vancouver, Canada
July 21, 1998
<PAGE>
DRAGON MINING CORPORATION
107 West Wade Lane, Suite 7
Payson, Arizona 85547-0009
(520) 474-9151
INFORMATION STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
to be held July 31, 1998
INTRODUCTION
This Information Statement will be first sent or given to
shareholders of Dragon Mining Corporation (the "Company") on or about July 21,
1998, in connection with the Annual Meeting of Shareholders to be held at 10:00
A.M. (local time), July 31, 1998 at 107 West Wade Lane, Suite 7, Payson, Arizona
(the "Annual Meeting").
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
VOTING SECURITIES
The securities entitled to vote at the Annual Meeting consist of all
of the issued and outstanding shares of the Company's $.001 par value common
stock (the "Common Stock"). The close of business on June 30, 1998, has been
fixed by the Board of Directors of the Company as the record date. Only
shareholders of record as of the record date may vote at the Annual Meeting. As
of the record date, there were 23,143,826 shares of Common Stock issued and
outstanding.
VOTING RIGHTS AND REQUIREMENTS
Each shareholder of record as of the record date will be entitled to
one vote for each share of Common Stock held as of the record date.
QUORUM AND VOTES REQUIRED FOR APPROVAL. The presence at the Annual
Meeting of the holders of an amount of shares of each class of stock entitled to
vote at the meeting, representing the right to vote shares of Common Stock of
not less than a majority of the number of shares of Common Stock outstanding as
of the record date, will constitute a quorum for the transaction of business.
The affirmative vote of a majority of the outstanding shares is necessary to
approve the amendments to the articles of incorporation to increase the number
of authorized shares and to change the name of the Company. The affirmative vote
of the majority of shares represented at the meeting and entitled to vote
thereat is necessary to elect the Board of Directors, to ratify the prior
issuance of shares, to approve the issuance of shares for debt, to approve the
Plan of Recapitalization, to adopt the 1998 Stock Option Plan, to adopt the 1998
Restricted Stock Plan, and to approve all other matters that may come before the
Annual Meeting.
Page 1
<PAGE>
PRINCIPAL SECURITY HOLDERS. The following table sets forth
information, as of the record date, 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 (5%) of the outstanding Common Stock,
and by directors, nominees, and officers of the Company, and by officers and
directors as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS (1)<F1>
<S> <C> <C>
Marbella Capital Corp. (2)<F2> 19,541,877 (3)<F3>(4)<F4> 84.44%
1305-1090 West Georgia Street
Vancouver, BC V6E 3V7
Thomas J. Ian Wright 1,513,959 6.54%
128 Limmer Lane
Felpham, W. Bogner Regis
W. Sussex, United Kingdom
Thomas L. Crom -0- (5)<F5> 0%
P.O. Box 9
Payson, Arizona 85547
Larry N. Lorenz -0- (4)<F4> 0%
Suite 515, 625 Howe Street
Vancouver, B.C. Canada V6C 2T6
Aubrey L. McGinnis -0- (4)<F4> 0%
Suite 515, 625 Howe Street
Vancouver, B.C. Canada V6C 2T6
Euro-Carib Consultants Ltd.. -0- (4)<F4> 0%
P.O. Box N 10697
Kings Court Bay Street
Nassau, Bahamas
Middlegate Financial Limited -0- (4)<F4> 0%
3rd Floor Bahamas Financial Center
P.O. Box N 4584
Nassau Bahamas
Middlegate Financial Ltd. -0- (4)<F4> 0%
C/O Obelisk International Trust Company
Lynwood House
37 Hill Street
St. Helier, Jersey
Page 2
<PAGE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS (1)<F1>
<S> <C> <C>
All officers and directors as a
group (4 persons) 21,055,836 90.98%
<FN>
<F1>
(1) 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 June 30,
1998, these additional shares are deemed to be outstanding for the purpose of
computing the percentage of each class owned by such persons, but are not deemed
to be outstanding for the purpose of computing the percentage of any other
person.
<F2>
(2) Marbella Capital Corp. ("Marbella") is a privately owned Canadian
corporation which is owned 40% by Anton Hendriksz, 30% by Nick DeMare and 30% by
Thomas L. Crom. Mr. Crom is a director of the Company. Messrs. Hendriksz and
DeMare are former directors. See "Voting Securities and Principal Holders
Thereof - Changes in Control."
<F3>
(3) Subject to shareholder approval, Marbella will receive an additional
21,000,000 shares (pre-split) in exchange for the cancellation of debt in the
amount of $2,100,000 owed by the Company to Marbella. See "Proposal 4: To
Approve The Issuance of 21,000,000 Shares to Marbella Capital Corp. At a Deemed
Price of $0.10 to Retire Debt of $2,100,000." After such issuance, Marbella
would own 40,541,877 shares, or 91.84% of the outstanding Common Stock of the
Company.
<F4>
(4) On July 6, 1998 Marbella arranged a sale of 36,649,860 shares (pre-split) of
the Company's Common Stock (the "Control Shares") to a group of 15 investors
(the "Investors"). The Control Shares include 21,000,000 shares to be issued to
Marbella as described in "Proposal 4: To Approve The Issuance of 21,000,000
Shares to Marbella Capital Corp. At a Deemed Price of $0.10 to Retire Debt of
$2,100,000." The consideration given to Marbella by the Investors consists of a
promissory note in the amount of $25,000 bearing interest at 8% per year. The
Investors will collectively own 83% of the Company"s then outstanding shares.
The names, number of shares purchased and percentage owned by these eleven
investors are as follows:
PURCHASER Number of Shares Percentage of Outstanding
Larry N. Lorenz(a) 6,250,000 14.16
Aubrey L. McGinnis(a) 2,145,360 4.86
Adana Investments Limited 2,150,000 4.87
c/o Obelisk International Trust Company
Lynwood House
37 Hill Street
St. Heiler, Jersey JE2 4UA
Page 3
<PAGE>
PURCHASER Number of Shares Percentage of Outstanding
Lusaka Investments Limited 2,150,000 4.87
c/o Obelisk International Trust Company
Lynwood House
37 Hill Street
St. Heiler, Jersey JE2 4UA
Mabalane Investments Limited 2,200,000 4.98
c/o Obelisk International Trust Company
Lynwood House
37 Hill Street
St. Heiler, Jersey JE2 4UA
Perlogos Investments Limited 2,200,000 4.98
c/o Obelisk International Trust Company
Lynwood House
37 Hill Street
St. Heiler, Jersey JE2 4UA
Dresden Investments S.A. 2,150,000 4.87
Suite 61 Grosvenor Close
Box N 7521
Nassau, Bahamas
Euro-Carib Consultants Ltd. 2,150,000 4.87
P.O. Box N 10697
Kings Court Bay Street
Nassau, Bahamas
Middlegate Investments Limited 2,150,000 4.87
3rd Floor Bahamas Financial Center
P.O. Box N 4584
Nassau, Bahamas
Middlegate Investments Ltd. 2,150,000 4.87
c/o Obelisk International Trust Company
Lynwood House
37 Hill Street
St. Heiler, Jersey JE2 4UA
Millport Securities Inc. 2,150,000 4.87
Suite M2 Charlote House
P.O. Box N 4825
Nassau, Bahamas
Pacific Rim Capital Ltd. 2,201,150 4.99
7 Prince Street
Belize City, Belize
Page 4
<PAGE>
PURCHASER Number of Shares Percentage of Outstanding
China Belle Financial Corp. 2,201,150 4.99
P.O. Box 192
Grande Turk, Turks & Caicos Islands
British West Indies
Lay Eng Sei 2,201,100 4.99
Blk 770,
Pasir Ris Street 71, #11-344
Singapore 510770
Tanya Beauchemin 2,201,100 4.99
3240 Chrome Crescent
Coquitlam, British Columbia V3E 1M5
TOTAL 36,649,860 83.02
(a) Messrs. Lorenz and McGinnis are officers and directors of the Company. See
"Proposal 1: Election of Directors."
<F5>
(5)Mr. Crom had unpaid but accrued compensation as follows: $4,800 for 1997 and
$4,800 for 1996. On July 7, 1998, Mr. Crom agreed to accept 96,000 shares of the
Company's Common Stock valued at $0.10 per share (prior to the reverse-split) in
payment for his services.
</FN>
</TABLE>
CHANGES IN CONTROL
See footnote 4 to the table of Principal Security Holders above.
As part of the sales agreements with Marbella it was agreed that two
of those investors, Larry Lorenz and Aubrey L. McGinnis would become directors.
Messrs. Lorenz and McGinnis became directors on July 6, 1998, replacing Anton
Hendriksz and Nick DeMare who resigned on the same date.
There are no other arrangements known to the Company, including any
pledge by any person of securities of the Company, the operation of which may,
at a subsequent date, result in a further change in control of the Company.
MATTERS TO ACTED UPON
PROPOSAL 1: ELECTION OF DIRECTORS
The directors of the Company are elected to serve until the next
annual shareholders' meeting or until their respective successors are elected
and qualify. Officers of the Company hold office until the meeting of the Board
of Directors immediately following the next annual shareholders' meeting or
until removal by the Board of Directors. Interim replacements for resigning
directors and officers are appointed by the Board of Directors.
Page 5
<PAGE>
The names of the nominees for directors and certain information
about them are set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE Business Experience
COMPANY
<S> <C> <C> <C>
Larry N. Lorenz 47 Director, Chief Since July 6, 1998 Mr. Lorenz has been
Executive Officer the CEO nd a Director of the Company.
and Director Since 1985, Mr. Lorenz is a Director
and Management representative for IBIS
International Group of Companies,
based in Vancouver, Canada that is an
international business consortium that
undertakes business and financial
transactions, investments, project
development and merchant banking. Mr.
Lorenz acts as a "Diamond Industry
Consultant" for developing and
operational companies whose interests
are in the emerging nations.
Aubrey L. McGinnis 54 Director and Since July 6, 1998 Mr. McGinnis has
Corporate been a Director and Corporate
Secretary Secretary of the Company. Mr. McGinnis
is a Law School graduate with
experience in corporate and commercial
law. A member of the Alberta Bar since
1973, Mr. McGinnis has a broad range
of experience including tax
mitigation, commercial contract design
and litigation. From June 1996 to June
1997, Mr. McGinnis consulted with
individuals and companies regarding
tax shelters in Canada. From February
1995 to June 1996, Mr. McGinnis was
employed as Director of Operations of
Erickson College, a private post
secondary institution in British
Columbia. From February 1994 to
February 1995, Mr. McGinnis consulted
with individuals and companies
regarding the funding of projects. Mr.
McGinnis was employed as Director of
Operations of BCNLP Institute,
Vancouver, Canada, from June 1993 to
February 1994.
Page 6
<PAGE>
Thomas L. Crom 42 Director, Chief From February 1988 until May 30, 1998
Financial Officer Mr. Crom was President of the Company.
and Treasurer From February 1988 to the present Mr.
Crom has been a Director, Chief
Financial Officer and Treasurer. Mr.
Crom is President and co-founder of
Eureka Ventures a private management
consulting firm located in Payson,
Arizona, which provides services to
the mining industry. Mr. Crom is also
president of SADIA a private diamond
exploration company which has
properties in Venezuela. Mr. Crom is a
certified public accountant, a
certified management accountant and
has a masters degree in business. He
has been involved in the mining
business for 15 years.
Thomas J. Ian Wright 69 Chairman and Chairman of the Board since June 1994,
Director Mr. Wright has also been the director
of European Operations for Barrington
Communications Group, located in New
York, New York, since 1992. Mr. Wright
is also a director of Butte Mining Ltd
and Dunlap Resources, both of which
are mining companies located in the
United Kingdom. From 1977 through 1992
he was a mining consultant for Laing &
Cruickshank a stock brokerage firm
based in the United Kingdom.
</TABLE>
The following table sets forth, as of the date of this Information
Statement, the names of the Company's executive officers, including all
positions and offices held by such person. These officers are elected to hold
office for one year or until their respective successors are duly elected and
qualified:
<TABLE>
<CAPTION>
NAME POSITION WITH THE
COMPANY
<S> <C>
Larry N. Lorenz Director, Chief Executive Officer, President and Director
Aubrey L. McGinnis Director and Corporate Secretary
Thomas L. Crom Director, Treasurer and Chief Financial Officer
Thomas J. Ian Wright Chairman and Director
</TABLE>
Except as otherwise indicated below, no organization by which any
officer or director previously has been employed in an affiliate, parent or
subsidiary of the Company.
On July 7, 1998 the Company formed separate audit, nominating, and
compensation committees of
Page 7
<PAGE>
the Board of Directors. The committee members are: Larry N. Lorenz, Aubrey L.
McGinnis, Thomas L. Crom and Thomas J. Ian Wright.
Messrs. Crom and Wright were directors through 1997. There have been
no official meetings of the board during 1997.
COMPLIANCE WITH SECTION 16 (A) OF THE EXCHANGE ACT
During the fiscal year ended December 31, 1997, Marbella Capital
Corp. and Mr. Wright failed to timely file a Form 5 with the Securities and
Exchange Commission as required by Section 16(a) of the Securities Exchange Act
of 1934, as amended.
EXECUTIVE COMPENSATION
The following table sets forth in summary form the compensation
received during each of the Company's last three completed fiscal years by the
Chief Executive Officer of the Company. There was no executive officer of the
Company whose total salary and bonus exceeded $100,000 in the Company's fiscal
year ended December 31, 1997.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
RESTRICTED
NAME AND STOCK LTIP ALL OTHER
PRINCIPAL OTHER ANNUAL AWARD(S) OPTIONS/SARS PAYOUTS COMPEN-
POSITION YEAR SALARY BONUS COMPENSATION ($) ($) ($) ($) SATION ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thomas L. 1997 $4,800(1)<F1> -0- -0- -0- -0- -0- -0-
Crom, 1996 $4,800(1)<F1> -0- -0- -0- -0- -0- -0-
former 1995 $-0- -0- -0- -0- -0- -0- -0-
President
and Chief
Executive
Officer (2)<F2>
<FN>
<F1>
(1) Mr. Crom had unpaid but accrued compensation as follows:$4,800 for
1997 and $4,800 for 1996. On July 7, 1998, Mr. Crom agreed to accept
96,000 shares of the Company's Common Stock valued at $0.10 per
share (prior to the reverse-split) in payment for his services. See
"Proposal 1: Election of Directors - Certain Transactions."
<F2>
(2) Mr. Crom resigned as President and Chief Executive Officer on May
30, 1998. On that date Mr. Lorenz became the Chief Executive Officer
of the Company.
</FN>
</TABLE>
Employment agreements with the Company's executive officers are
described below in "Employment Agreements."
Page 8
<PAGE>
The Company does not pay non-officer directors for their services
nor does it pay any director's fees for attendance at meetings. Directors are
reimbursed for any expenses incurred by them in their performance as directors.
The Company does not have a pension or retirement plan.
STOCK OPTION PLAN
The Company adopted an Incentive Stock Option plan on December 18,
1984, which expired on October 31, 1994. There are no outstanding stock options
from that plan. The Company is proposing to adopt a new Stock Option Plan and
Restricted Stock Plan. See "Proposal 7: Adoption of 1998 Stock Option Plan" and
"Proposal 8: Adoption of 1998 Restricted Stock Plan."
EMPLOYMENT AGREEMENTS
There are no employments agreements with any of the officers of the
Company.
CERTAIN TRANSACTIONS
During 1997 and 1996, the Company was charged management,
consulting, and office administration fees of $4,800 per year by Thomas L. Crom.
On July 7, 1998 Mr. Crom agreed to accept 96,000 shares (pre-split) of Dragon
common stock valued at $0.10 per share as payment of those fees.
During 1997 and 1996 interest expense of $168,000 on the Note
payable to Marbella was canceled. See "Financial Statements."
PROPOSAL 2: AMEND ARTICLES OF INCORPORATION TO INCREASE THE
AUTHORIZED COMMON SHARES FROM 25,000,000 TO 50,000,000
The Board of Directors has proposed, subject to shareholder
approval, to amend the Articles of Incorporation to increase the authorized
number of shares of Common Stock from 25,000,000 to 50,000,000.
REASONS FOR THE INCREASE OF AUTHORIZED COMMON SHARES
This will allow the Company to pay the outstanding debt of
$2,100,000 to Marbella Capital Corp (as indicated in "Proposal 3: to Approve The
Issuance of 21,000,000 Shares to Marbella Capital Corp. At a Deemed Price of
$0.10 to Retire Debt of $2,100,000"), purchase other business opportunities
through the issuance of additional shares, and allow incentives to management
through stock options plans. See "Proposal 7: Adoption of 1998 Stock Option
Plan" and "Proposal 8: Adoption of 1998 Restricted Stock Plan."
Management is presently negotiating a joint venture agreement with
Youssef Diamond Mining Company, a Liberian corporation ("Youssef"). Youssef is
the holder and operator of various diamond and valuable mineral concessions
located in the Republic of Liberia. Management believes the Company will be
required to issue a number of shares to Youssef, along with options to acquire
additional shares, as part of the joint venture agreement. The terms of the
joint venture agreement are not expected to result in a change of
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<PAGE>
control of the Company.
PROPOSAL 3: TO RATIFY THE ISSUANCE OF 15,000,000 SHARES TO MARBELLA
CAPITAL CORP. AT A DEEMED PRICE OF $0.001 FOR $15,000 CASH.
The Company's sole acting director on July 11, 1995, approved the
issuance of 15,000,000 shares to Marbella Capital Corp. ("Marbella") at a deemed
price of $0.001 per share for a total of $15,000. The Board of Directors is
seeking shareholder ratification of this transaction. As a result of the
transaction Marbella became the owner of 74.36% of the then outstanding shares
of Common Stock and Mr. Crom was the owner of 30% of Marbella's then outstanding
shares.
REASONS FOR THE SHARE ISSUANCE
At that time the Company had no cash and significant liabilities.
Cash was urgently needed to keep the Company in existence, renegotiate its debt
and pursue business opportunities. See "Proposal 2: Amend Articles of
Incorporation to Increase The Authorized Common Shares From 25,000,000 to
50,000,000."
PROPOSAL 4: TO APPROVE THE ISSUANCE OF 21,000,000 SHARES TO MARBELLA
CAPITAL CORP. AT A DEEMED PRICE OF $0.10 TO RETIRE DEBT OF $2,100,000.
The Board of Directors has proposed, subject to shareholder
approval, to pay the Company's outstanding debt to Marbella of $2,100,000 by
issuing 21,000,000 shares (pre-split) of common stock. If this transaction is
approved, Marbella will own 91.84% of the shares then outstanding.
REASONS FOR THE SHARE ISSUANCE
As of December 31, 1997 the Company had a working capital deficit of
$2,095,764 and negative shareholders' equity of $2,095,764. Management believes
the Company must reduce its liabilities in order to pursue other business
opportunities which have been identified. See "Proposal 6: Name Change."
PROPOSAL 5: AUTHORIZATION TO IMPLEMENT REVERSE SPLIT
The Board of Directors has proposed, subject to shareholder
approval, to effect a 1-for-10 reverse stock split whereby every ten (10) shares
of the Company's currently outstanding shares of Common Stock will be exchanged
for one share of Common Stock. After issuing the 21,000,000 shares to Marbella
(See "Proposal 4: To Approve The Issuance of 21,000,000 Shares to Marbella
Capital Corp. At a Deemed Price of $0.10 to Retire Debt of $2,100,000") and
96,000 to Thomas L. Crom, there will be 44,239,826 shares outstanding, and the
reverse split will reduce this number to approximately 4,423,983. The reverse
split will not alter the number of shares of Common Stock authorized for
issuance, which after approving Proposal 2 would be 50,000,000.
Page 10
<PAGE>
REASONS FOR THE PROPOSED REVERSE STOCK SPLIT
Management is proposing the reverse stock split for the following
reasons: management believes a reverse stock split will (1) reduce the number of
outstanding shares of Common Stock and thereby make available shares of Common
Stock with which to acquire assets into the Company; and (2) help raise the
trading price of the Company's Common Stock. In discussions by the Company's
executive officers with members of the brokerage and banking industries, the
Company has been advised that the brokerage firms might be more willing to
evaluate the Company's securities if the price range for the Company's Common
Stock were higher. Management believes that additional interest by the
investment community in the Company's stock, of which there can be no assurance,
is desirable.
Management of the Company also believes that existing low trading
prices of the Company's Common Stock may have an adverse impact upon the trading
level of the trading market for the Common Stock. In particular, brokerage firms
often charge higher commissions for transactions involving low-priced stocks
than they would for the same dollar amount of securities with a higher per share
price. Some brokerage firms will not recommend purchases of low-priced stock to
their clients or make a market in such stock, which tendencies may adversely
affect the liquidity for current shareholders and the Company's ability to
obtain additional equity financing.
EFFECTS OF APPROVAL OF THE REVERSE STOCK SPLIT
Theoretically, the market price of the Company's Common Stock should
increase approximately 10- fold following the proposed reverse stock split. It
is hoped that this will result in a price level which will overcome the
reluctance, policies, and practices of broker-dealers described above and
increase interest in the Company's Common Stock by investors. Shareholders
should note that the effect of the reverse stock split upon the market price for
the Company's Common Stock cannot be accurately predicted. Further, there can be
no assurance that the per share market price of the post-split Common Stock will
trade at a price 10 times the price of the pre-split Common Stock, or, if it
does, that the price can be maintained at that level for any period of time.
On June 30, 1998, the closing bid and asked prices of the Company's
Common Stock were $0.01 and $0.10 per share, respectively. The foregoing
quotation reflects management's queries to brokers which trade on the pink
sheets and reflect inter-dealer prices, without retail mark-up, mark-down, or
commission and may not represent actual transactions.
Management, by implementing a reverse stock split, does not intend
to "take the Company private" by decreasing the number of shareholders of the
Company. Management does not believe that a 1-for-10 reverse stock split would
result in any shareholders being eliminated or closed out as a result of holding
less than one share after the reverse stock split. There are 84 shareholders of
record as of June 30, 1998 who have a number of shares not evenly divisible by
10. As disclosed below, the Company will round up to the nearest whole share
instead of issuing fractional shares resulting from the reverse stock split.
PROCEDURE FOR IMPLEMENTING THE REVERSE SPLIT
If this proposal in adopted by the shareholders, ten (10) shares of
pre-split Common Stock will be exchanged for each share of post-split Common
Stock. Shares of post-split Common Stock may be obtained
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<PAGE>
by surrendering certificates representing shares of pre-split Common Stock to
the Company's transfer agent, American Securities Transfer, Inc., 938 Quail
Street, Suite 101, Lakewood, Colorado 80215 (the "Transfer Agent"). To determine
the number of shares of post-split Common Stock issued to any record holder, the
total number of shares represented by all of the certificates issued in the name
of that record holder held in each account, as set forth in the records of the
Transfer Agent on the date upon which the reverse split becomes effective, will
be divided by 10. Upon surrender to the Transfer Agent of the share certificates
(s) representing shares of pre-split Common Stock and the applicable transfer
fee, which presently is $20.00 per certificate payable by the holder, the holder
will receive a share certificate representing the appropriate number of shares
of post-split Common Stock. If the division described above results in a
quotient which contains a fraction, the Company will round up to the nearest
whole share instead of issuing a fractional share. Shareholders are not required
to exchange their certificates of pre-split Common Shares for post-split Common
Shares. It is anticipated that the reverse split will be effected August 1,
1998.
The Company has made arrangements with American Securities Transfer
Inc., the stock transfer agent. to pay the transfer fee for the first thirty
(30) days after the effective date of the reverse stock split. The effective
date will be August 1, 1998, which is the day after the shareholders meeting.
All shareholders of record will receive transfer instructions from the stock
transfer agent.
FEDERAL INCOME TAX EFFECTS OF THE PLAN
Holders of Common Stock will not be required to recognize any gain
or loss if the reverse stock split is effected. The tax basis of the aggregate
shares of post-split Common Stock received by present shareholders will be equal
to the basis of the aggregate shares of the pre-split Common Stock exchanged
therefor. The holding period for shares of post-split Common Stock will include
the holding period of the pre-split Common Stock when calculated for purposes of
taxation or sales under Rule 144 of the Rules and Regulations under the
Securities Act of 1933, as amended (the "Securities Act"). Rule 144 requires
that "restricted securities," as defined in Rule 144, be held at least one year
before routine sales be made in accordance with the provisions of the Rule. Rule
144 provides that shares issued in a reverse stock split are deemed to have been
held from the date of acquisition of the shares involved in the reverse stock
split.
PROPOSAL 6: NAME CHANGE
The Board of Directors has proposed, subject to shareholder
approval, to change the Company's name from "Dragon Mining Corporation" to
"Dragon Diamond Corporation".
REASONS FOR THE NAME CHANGE
Management will be pursing business opportunities primarily in the
area of diamonds. This includes buying and selling of rough and uncut diamonds,
exploration, development and producing diamonds. This name will better reflect
the Company's primary business. In the event the shareholders do not approve the
name change, the Company's name will remain "Dragon Mining Corporation."
Page 12
<PAGE>
PROPOSAL 7: ADOPTION OF 1998 STOCK OPTION PLAN
The Board is requesting that the shareholders of the Company adopt
the 1998 Stock Option Plan (the "Plan") reserving an aggregate of 663,597 shares
(post-split and assuming the issuance of shares to Mr. Crom and the approval of
the issuance of shares to Marbella) of the Company's Common Stock (the
"Available Shares") for issuance pursuant to the exercise of stock options
("Options") which may be granted to employees, officers, and directors of the
Company and consultants to the Company. The Plan also provides an annual
adjustment in the number of Available Shares, commencing December 31, 1998, to a
number equal to 15% of the number of shares outstanding on December 31 of the
preceding year or 663,597 shares, whichever is greater. The Plan is designed to
(i) induce qualified persons to become employees, officers, and directors of the
Company; (ii) reward such persons for past services to the Company (iii)
encourage such persons to remain in the employ of the Company or associated with
the Company; and (iv) provide additional incentive for such persons to put forth
maximum efforts for the success of business of the Company. To the extent that
management personnel may be eligible to receive Options which may be granted
under the Plan, management has an interest in obtaining approval of the Plan by
the Company's shareholders.
As of June 30, 1998 four persons were eligible to participate in the
Plan. These consist of the current officers and directors of the Company.
Although the Company has no immediate plans to add additional employees,
officers, or directors, it does anticipate that additional persons will become
eligible as the Company expands.
The Plan will be administered by the Compensation Committee of the
Board of Directors (the "Committee"). Transactions under the Plan are intended
to comply with all applicable conditions of the Rule 16b-3 under the Securities
Exchange Act of 1934, as amended (the "1934 Act"). In addition to determining
who will be granted Options, the Committee has the authority and discretion to
determine when Options may be granted and the number of Options to be granted.
The Committee may determine which Options may be intended to qualify ("Incentive
Stock Option") for special treatment under the Internal Revenue Code of 1986, as
amended from time to time (the "Code") or Non-Qualified Options ("Non-Qualified
Stock Options") which are not intended to qualify. See "Federal Income Tax
Consequences" below. The Committee also may determine the time or times when
each Option becomes exercisable, the duration of the exercise period for Options
and the form or forms of the instructions evidencing Options granted under the
Plan. The Committee may adopt, amend, and rescind such rules and regulations as
in its opinion may be advisable for the administration of the Plan. The
Committee may amend the Plan without shareholder approval where such approval is
not required to satisfy any statutory or regulatory requirements.
The Plan provides that disinterested directors will receive
automatic options grants to purchase 5,000 (post-reverse split shares) of the
Company's Common Stock upon their initial appointment or election as directors,
and on the date of each subsequent annual shareholders' meeting, which vest in
33-1/3% installments commencing on the first anniversary of the grant date.
Grants to employee directors and officer/directors can be either Non-Qualified
Stock Options or Incentive Stock Options, to the extent that they do not exceed
the Incentive Stock Option exercise limitations, and the portion of an option to
an employee director or officer/director that exceeds the dollar limitations of
Code Section 422 will be treated as a NonQualified Stock Option. All options
granted to disinterested directors will be Non-Qualified Options.
Page 13
<PAGE>
The Committee also may construe the Plan and the provisions in the
instruments evidencing options granted under the Plan to employee and officer
participants and is empowered to make all other determinations deemed necessary
or advisable for the administration of the Plan. Option grants to disinterested
directors are self-administering and not subject to the Committee's discretion.
The Committee may not adversely affect the rights of any participant under any
unexercised option or any portion thereof without the consent of such
participant. This Plan will remain in effect until it is terminated by the
Compensation Committee, except that no Incentive Stock Option will be granted
after June 30, 2008.
The Plan contains provisions for proportionate adjustment of the
number of shares for outstanding options and the option price per share in the
event of stock dividends, recapitalizations resulting in stock splits or
combinations or exchanges of shares.
Participants in the Plan may be selected by the Committee from
employees and officers of the Company and its subsidiaries and consultants to
the Company and its subsidiaries. Disinterested directors receive annual
automatic grants, as described above. In determining the persons to whom options
will be granted and the number of shares to be covered by each option, the
Committee will take into account the duties of the respective person, their
present and potential contributions to the success of the Company, and such
other factors as the Committee deems relevant to accomplish the purposes of the
Plan.
Only employees of the Company and its subsidiaries, as the term
"employees" is defined for the purposes of the Code will be entitle to receive
Incentive Stock Options. Incentive Stock Options granted under the Plan are
intended to satisfy all requirements for incentive stock options under Section
422 of the Code and the Treasury Regulations thereunder.
Each option granted under the Plan will be evidenced by a written
option agreement between the Company and the optionee. The option price of any
Incentive Stock Option may be not less than 100% of the Fair Market Value per
share on the date of grant of the options; provided, however, that any Incentive
Stock Option granted under the Plan to a person owning more than ten percent of
the total combined voting power of the Common Stock will have an option price of
not less than 110% of the Fair Market Value per share on the date of grant of
the Incentive Stock Option. Each Non-Qualified Stock Option granted under the
Plan will be at a price no less than 85% of the Fair Market Value per share on
the date of grant thereof, except that the automatic stock option grants to the
disinterested directors will be at a price equal to the Fair Market Value per
share on the date of grant. "Fair Market Value" per share as of a particular
date is defined in the Plan as the last sale price of the Common Stock as
reported on a national securities exchange or on the NASDAQ System or, if none,
the average of the closing bid and asked prices of the Company's Common Stock as
reported by NASDAQ or, if such quotations are unavailable, the value determined
by the Committee in its discretion in good faith.
The exercise period of options granted under the Plan may not exceed
ten years from the date of grant thereof. Incentive Stock Options granted to a
person owning more than ten percent of the total combined voting power of the
Common Stock of the Company will be for no more than five years. Except in the
case of options granted to disinterested directors, who comprise the
Compensation Committee, the Committee will have the authority to accelerate or
extend the exercisability of any outstanding option at such time and under such
circumstances as it, in its sole discretion, deems appropriate. However, no
exercise period may be extended to increase the term of the option beyond ten
years from the date of the grant.
Page 14
<PAGE>
To exercise an option, the optionee must pay the full exercise price
in cash, in shares of Common Stock having a Fair Market Value equal to the
option price or in property or in a combination of cash, shares, and property
and, subject to approval of the Committee. The Committee has the sole and
absolute discretion to determine whether or not property other than cash or
Common Stock may be used to purchase the shares of Common Stock thereunder and,
if so, to determine the value of the property received.
An option may not be exercised unless the optionee then is an
employee, officer, or director of the Company or its subsidiaries, and unless
the optionee has remained continuously as an employee, officer, or director of
the Company since the date of grant of the option. If the optionee ceases to be
an employee, officer, or director of the Company or its subsidiaries other than
reason by death, disability, or for cause, all options granted to such optionee,
fully vested to such optionee but not yet exercised, will terminate three months
after the date the optionee ceases to be an employee, officer or director of the
Company. All optionees which are not vested to an optionee, under the conditions
stated in the Plan for which employment ceases, will immediately terminate on
the date the optionee ceases employment or association.
If an optionee dies while an employee, officer or director of the
Company, or if the optionee's employment, officer or director status terminates
by reason of disability, all options theretofore granted to such optionee,
whether or not otherwise exercisable, unless earlier terminated in accordance
with their terms, may be exercised at any time within one year after the date of
death or disability of said optionee, by the optionee or by the optionee's
estate or by a person who acquired the right to exercise such options by bequest
or inheritance or otherwise by reason of death or disability of the optionee.
Options granted under the Plan are not transferable other than by
will or by the laws of descent and distribution or pursuant to a qualified
domestic relations order as defined by the Code or Title I of the Employee
Retirement Income Security Act of 1974, or the rule thereunder. Options may be
exercised, during the lifetime of the optionee, only by the optionee and
thereafter only by his legal representative. An optionee has no rights as a
shareholder with respect to any shares covered by an option until the option has
been exercised.
As a condition to the issuance of share upon the exercise of an
option, the Company will require the optionee to pay to the Company the amount
of the Company's tax withholding liability required in connection with such
exercise. The Company, to the extent permitted or required by law, may deduct a
sufficient number of shares due to the optionee upon exercise of the option to
allow the Company to pay such withholding taxes. The Company is not obligated to
advise any optionee of the existence of any tax or the amount which the Company
will be so required to withhold.
FEDERAL INCOME TAX CONSEQUENCES
The federal income tax discussion set forth below is included for
general information only. Optionees are urged to consult their tax advisors to
determine the particular tax consequences applicable to them, including the
application and effect of foreign, state, and local income and other tax laws.
INCENTIVE STOCK OPTIONS. No income results to the holder of an
Incentive Stock Option upon the grant thereof or issuance of shares upon the
exercise thereof. The amount realized on the sale or taxable exchange of the
Option Shares in excess of the option exercise price will be considered a
capital gain, except that, if a sale, taxable exchange, or other disposition
occurs within one year after the exercise of the Incentive Stock
Page 15
<PAGE>
Option or two years after the grant of the Incentive Stock Option (generally
considered to be a "disqualifying disposition"), the optionee will realize
compensation, for federal income tax purposes, on the amount by which the lessor
of (i) the fair market value on the date of exercise or (ii) the amount realized
on the sale of the shares, exceeds the exercise price. Any appreciation on the
shares between the exercise date and the fair market value of the shares
acquired at the time of exercise is a tax preference item for the purposes of
calculating the alternative minimum tax on individuals under the Code. This
preference amount will not be included again in alternative minimum taxable
income in the year the taxpayer disposes of the stock.
NON-QUALIFIED STOCK OPTIONS. No compensation will be realized by the
optionee of a Non-Qualified Stock Option at the time of grant. Upon exercise of
a Non-Qualified Stock Option, an optionee will realize compensation for federal
income tax purposes on the difference between the exercise price and the fair
market value of the shares acquired at the time of exercise. If the optionee
exercises a Non-Qualified Stock Option by surrendering shares of the Company's
Common Stock, the optionee will not recognize income or gain at the time of
exercise.
CONSEQUENCES TO THE COMPANY. The Company recognizes no deduction at
the time of grant or exercise of an Incentive Stock Option and recognizes no
deduction at the time of grant of a Non-Qualified Stock Option. The Company will
recognize a deduction at the time of exercise of a Non-Qualified Stock Option on
the difference between the option price and the fair market value of the shares
on the date of grant. The Company will also recognize a deduction to the extent
the optionee recognizes income upon a disqualifying disposition of share
underlying an Incentive Stock Option.
NEW PLAN BENEFITS No benefits or amounts can be determinable under this plan
since the plan has yet to be adopted, no meetings of the compensation committee
have taken place to implement this plan. There are no specific grants and thus
none can be attributable to a single person. Currently the Company only has four
persons eligible to receive a grant. All four person are members of the
executive group.
As of the date of this Information Statement, the Company did not
have a stock option plan. Therefore, the proposed plan would represent a new
benefit to be offered to employees, officers and directors. As such, management
cannot determine what the benefits of the new plan would have been to the
present officers and directors. In addition, management cannot place a value on
the options that would be issued, given the Company's inactive status.
VESTING
Unless otherwise specified in an optionee's agreement, options
granted under the Plan to officers, officer/directors, disinterested directors
who are not on the Committee, and employees will become vested with the optionee
under the following schedule: 50% upon the first anniversary of the option grant
and 12.5% upon each of the four three-month periods following the first
anniversary.
Page 16
<PAGE>
PROPOSAL 8: ADOPTION OF 1998 RESTRICTED STOCK PLAN
The Board is requesting that the shareholders of the Company adopt
the 1998 Restricted Stock Plan (the "Restricted Plan") reserving an aggregate of
663,597 shares (post-split and assuming the issuance of shares to Mr. Crom and
the approval of the issuance of shares to Marbella) of the Company's Common
Stock (the "Available Shares") for issuance to employees, consultants, officers,
and directors of the Company and consultants to the Company. The Plan also
provides an annual adjustment in the number of Available Shares, commencing
December 31, 1998, to a number equal to 15% of the number of shares outstanding
on December 31 of the preceding year or 663,597 shares, whichever is greater.
The Plan is designed to (i) induce qualified persons to become employees,
consultants, officers, directors of the Company; (ii) reward such persons for
past services to the Company; (iii) encourage such persons to remain in the
employ of the Company or associated with the Company; and (iv) provide
additional incentive for such persons to put forth maximum efforts for the
success of business of the Company. To the extent that management personnel may
be eligible to receive shares which may be granted under the Plan, management
has an interest in obtaining approval of the Plan by the Company's shareholders.
As of June 30, 1998 four persons were eligible to participate in the
Plan. These consist of the current officers and directors of the Company.
Although the Company has no immediate plans to add additional employees,
officers, or directors, it does anticipate that additional persons will become
eligible as the Company expands.
Shares issued under this Plan are "restricted" in the sense that
they are subject to repurchase by the Company at cost during the vesting period.
The Plan will be administered by the Compensation Committee of the
Board of Directors (the "Committee"). Transactions under the Plan are intended
to comply with all applicable conditions of the Rule 16b-3 under the Securities
Exchange Act of 1934, as amended (the "1934 Act"). In addition to determining
who will be issued shares, the Committee has the authority and discretion to
determine the purchase price of the shares issued under the Plan, the period of
months or periods of time during which the Company will have a right to
repurchase the shares and the terms and conditions of such repurchase, and the
form or forms of the instruments evidencing the issuance of shares pursuant to
the Plan. The Committee may adopt, amend, and rescind such rules and regulations
as in its opinion may be advisable for the administration of the Plan. The
Committee may amend the Plan without shareholder approval where such approval is
not required to satisfy any statutory or regulatory requirements.
The Plan provides that disinterested directors will receive an
automatic issuance of 5,000 (post-reverse split shares) of the Company's Common
Stock upon their initial appointment or election as directors, and on the date
of each subsequent annual shareholders' meeting, which vest in 33-1/3%
installments commencing on the first anniversary of the issue date.
The Committee also may construe the Plan and is empowered to make
all determinations deemed necessary or advisable for the administration of the
Plan. Issuances to disinterested directors are self- administering and not
subject to the Committee. The Committee may not adversely affect the rights of
any participant under any rights previously granted without the consent of such
participant. This Plan will remain in effect until it is terminated by the
Compensation Committee.
Page 17
<PAGE>
The Plan contains provisions for proportionate adjustment of the
number of shares for outstanding options and the option price per share in the
event of stock dividends, recapitalizations resulting in stock splits or
combinations or exchanges of shares.
Participants in the Plan may be selected by the Committee from
employees and officers of the Company and its subsidiaries and consultants to
the Company and its subsidiaries. Disinterested directors receive annual
automatic grants, as described above. In determining the persons to whom shares
will be granted and the number of shares to be issued, the Committee will take
into account the duties of the respective person, their present and potential
contributions to the success of the Company, and such other factors as the
Committee deems relevant to accomplish the purposes of the Plan.
Shares to be issue under the Plan will be evidenced by a written
restricted stock purchase agreement between the Company and the participant.
Shares issued under the Plan are transferable only if the transferee agrees to
be bound by all terms of the Plan, including the Company's right to repurchase
the shares, and only if such transfer is permitted under federal and state
securities laws. To facilitate the enforcement of the restrictions on transfer,
the Committee may require the holder of the shares to deliver the certificate
(s) to be held in escrow during the period of restriction.
FEDERAL INCOME TAX CONSEQUENCES
The federal income tax discussion set forth below is included only
for general information only. Participants are urged to consult their tax
advisors to determine the particular tax consequences applicable to them,
including the application and effect of foreign, state, and local income and
other tax laws.
Section 83(a) of the Internal Revenue Code provides that the receipt
of stock subject to a substantial risk of forfeiture and which is
nontransferable does not result in taxable income until the restrictions lapse.
At that time, the employee recognizes compensation income (taxable at the rate
applicable to ordinary income) in the amount of the spread between the value of
the stock and the amount, if any, the employee paid for the stock. The Company
must withhold employment taxes on this income, and generally may deduct the
amount the employee includes in income as an ordinary business expense.
VESTING
Unless otherwise specified in an optionee's agreement, options
granted under the Plan to officers, officer/directors, disinterested directors
who are not on the Committee, and employees will become vested with the optionee
under the following schedule: 50% upon the first anniversary of the option grant
and 12.5% upon each of the four three-month periods following the first
anniversary.
NEW PLAN BENEFITS No benefits or amounts can be determinable under this plan
since the plan has yet to be adopted, and no meetings of the compensation
committee have taken place to implement this plan. There are no specific grants
and thus none can be attributable to a single person. Currently the Company only
has four persons eligible to receive a grant. All four persons are members of
the executive group.
Page 18
<PAGE>
As of the date of this Information Statement, the Company did not
have a restricted stock plan. Therefore, the proposed plan would represent a new
benefit to be offered to employees, officers and directors. As such, management
cannot determine what the benefits of the new plan would have been to the
present officers and directors. Management estimates that if this plan had been
effective for 1997 and if the full amount of available shares were granted and
valued at a $1.00 it would have resulted in a benefit valued at $663,598 for the
executive group.
OTHER MATTERS
Except for the matters referred to in the accompanying Notice of
Annual Meeting, management does not intend to present any matter for action at
the Annual Meeting and knows of no matter to presented that is a proper subject
for action by the shareholders at the meeting.
INDEPENDENT PUBLIC ACCOUNTANTS
The Company has not selected a principal accountant for its current
fiscal year, and did not engage a principal accountant to audit its financial
statements during its two preceding fiscal years. The Company has been an
inactive registrant and, in reliance upon Rule 3-11 of Regulation S-X
promulgated by the Securities and Exchange Commission, did not prepare audited
financial statements for the fiscal years ended December 31, 1996, and 1997.
Management anticipates that the Company, at a later date, will engage a
principal accountant to audit the Company's financial statements for the current
fiscal year.
ANNUAL REPORT
The Company's Annual Report to Shareholders is being mailed with
this Proxy Statement. It consists of the information contained in the Company's
Form 10-K for the year ended December 31, 1997, as filed with the Securities and
Exchange Commission under the Securities Exchange Act of 1934.
INCORPORATION BY REFERENCE
The Company hereby incorporates by reference the financial
statements and section entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained in the Annual Report to
Shareholders which is being mailed with the Information Statement.
Page 19
<PAGE>
SHAREHOLDER PROPOSALS
Any shareholder proposing to have an appropriate matter brought
before the next annual meeting of shareholders must submit such proposals in
accordance with the proxy rules of the Securities and Exchange Commission. Such
proposals should be sent to the Company's mailing address: P.O. Box 9, Payson,
Arizona 85547-0009 for receipt no later than December 31, 1998.
By order of the Board of Directors:
/s/Larry N. Lorenz
Larry N. Lorenz, President
Vancouver, Canada
July 21, 1998
Page 20
<PAGE>
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, 1997, 1996 and 1995 the Company had working capital
deficiencies of $2,103,411, $2,095,764 and $2,087,075 respectively.
CORPORATE PLANS FOR 1998 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
1997 COMPARED TO 1996
The Company activities were limited to maintaining its status as a public
company which generated a net loss of $(7,648) compared to a loss of $( 8,689)
in 1996.
7
<PAGE>
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 $(399) in 1995
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.
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.
<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, 1997, 1996 and 1995 and
period from January 1, 1978
through December 31, 1997
<PAGE>
<TABLE>
DRAGON MINING CORPORATION
BALANCE SHEETS, DECEMBER 31, 1997 AND 1996
<CAPTION>
ASSETS 1997 1996
---- ----
<S> <C> <C>
Current Asset:
Cash and Cash equivalents $ 6,538 $ 9,869
---------- -------------
Total current assets $ 6,538 $ 9,869
Plant and equipment, net 0 0
Mineral properties, net 0 0
---------- -------------
Total asset $ 6,538 $ 9,869
========== =============
LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities:
Accounts payable $ 9,950 5,633
Due to Related Party 2,100,000 2,100,000
--------- ---------
Total current liabilities 2,109,950 2,105,633
--------- ---------
Total liabilities 2,109,950 2,105,633
--------- ---------
Shareholders' deficit:
Common stock, $001 par value; authorized 25,000,000; issued
23,143,826 shares as of December 31, 1997
and 1996 respectively 23,144 23,144
Additional paid-in Capital 3,103,889 3,103,889
Accumulated Deficit (5,230,445) (5,222,797)
----------- -----------
Total shareholders' equity (2,103,412) (2,095,764)
----------- -----------
Total liabilities and shareholder's equity $ 6,538 $ 9,869
=========== ==========
</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, 1997, 1996 AND 1995
<CAPTION>
1997 1996 1995
------ ------ ----------
<S> <C> <C>
Revenue:
Interest income $ 151 $ 221 $ 177
------- ------- -----------
Total Revenue 151 221 177
Operating expense:
General and administrative expenses 7,799 8,910 576
----- ----------- ------------
Total operating expenses 7,799 8,910 576
Net Income (Loss) $(7,648) $(8,689) $ (399)
======== ======== ============
Income (Loss) per common share $ (.01) $ (.01) $ (.01)
========= ======== ============
Weighted average shares outstanding 23,143,826 23,143,826 13,768,826
========== ========== ==========
</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, 1997 1996 AND 1995
<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)
Net (loss) year ended December 31, 1997 -0- -0- -0- (7,648) (7,648)
------- --- --- ----------- -------
Balance, December 31, 1996 23,143,826 23,144 3,103,889 (5,230,445) (2,103,412)
========== ====== ========= =========== ===========
</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, 1997, 1996 AND 1995
<CAPTION>
Cumulative
1997 1996 1995 PERIOD
---- ---- ---- ------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) (7,648) (8.689) (399) (4,891,631)
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 4,317 (3,733) 35 1,040,167
------ ------- --- ---------
Total adjustments 4,317 (3,733) 35 4,568,215
------ ------- --- ---------
Net cash provided by operating activities (3,331) (4,956) (434) (325,816)
------- ------- ----- ---------
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- -0- 15,000 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- -0- 15,000 3,365,726
----- ------ ------- ----------
Net increase (decrease) in cash (3,331) (4,956) (14,566) (3,820)
Cash and cash equivalents at beginning of year 9,869 14,825 259 40,721
------ ------ --------- -------
Cash and cash equivalents at end of year 6,538 9.869 14,825 36,901
====== ====== ========= ======
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 $2,103,411 at December 31, 1997. 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, 1997
and 1996:
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Mining equipment $ -0- $ -0-
Office equipment and fixtures -0- -0-
--------- ---------
-0- -0-
Less accumulated depreciation (0) (-0-)
---------- ---------
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,
1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Mineral properties $ -0- $ -0-
Less accumulated amortization -0- (-0-)
------------ ------------
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, 1997 and 1996 and is due on demand (see also note 7).
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<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 $5,097,584 expiring
from the year 2000 to the year 2016, as of the year ended December
31, 1997. 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, 1997 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, 1997:
-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, 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.
Continued
F-10
<PAGE>
<TABLE>
DRAGON MINING CORPORATION
SCHEDULE VI
ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<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, 1997:
Office Equipment $ -0- -0- -0- -0- $ -0-
Mining and Milling Equipment $ -0- -0- -0- -0- $ -0-
-------- --- --- --- -----------
Total $ -0- -0- -0- -0- $ -0-
======== === === === ===========
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
======== ===== ===== ===== ===========
</TABLE>
Continued
F-11
<PAGE>
<TABLE>
DRAGON MINING CORPORATION
SCHEDULE V
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<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, 1997:
Office Equipment $ -0- -0- -0- -0- $ -0-
Mining and Millling Equipment $ -0- -0- -0- -0- $ -0-
---------- --- --- --- ---------
Total $ -0- -0- -0- -0- $ -0-
========== === === === =========
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
======== === === === =========
</TABLE>
Continued
F-12
