U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
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Commission file number: 1-4799
EMPIRE GOLD INC.
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(Name of small business issuer in its charter)
Indiana 35-0540454
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
802 - 1985 Bellevue Ave.
West Vancouver, British Columbia, Canada V7V 1B6
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 604-921-2811
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act: NONE
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [ ]
No [X]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
State issuer's revenue for its most recent fiscal year: $4,103
As of May 31, 1998 (using the average of the bid and asked prices on such
day) the aggregate market value of the voting stock held by non-affiliates was
$2,627,550.
State whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ X ]
As of May 31, 1998, 74,128,997 shares of Common Stock, no par value, of the
Issuer were outstanding.
Documents Incorporated by Reference into this Report
None
Transitional Small Business Disclosure Format (check one) Yes [ ] No [X]
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Table of Contents
Page
PART I ----
Item 1. Description of Business 4
Item 2. Description of Property 14
Item 3. Legal Proceedings 22
Item 4. Submission of Matters to a Vote of Security Holders 22
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 22
Item 6. Management's Discussion and Analysis or Plan of Operation 23
Item 7. Financial Statements 26
Item 8. Changes In and Disagreements With Accountants
on Accounting and Financing Disclosure 35
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons: Compliance with Section 16(a) of the Exchange Act 35
Item 10. Executive Compensation 37
Item 11. Security Ownership of Certain Beneficial Owners and Management 37
Item 12. Certain Relationships and Related Transactions 39
Item 13. Exhibits and Reports on Form 8-K 41
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In this Annual Report on Form 10-KSB, all references to "dollars" and
"$"are to United States dollars, except as otherwise noted. Reference to "C$" is
to Canadian dollars and "ATS" is to Austrian Schillings. Conversion of Austrian
Schillings to United States dollars herein assumes a conversion rate of 1
ATS=$0.0796 and 1 C$=$0.6863, the rate published in the Wall Street Journal on
June 1, 1998.
When used in this Annual Report on Form 10-KSB, in future filings by the
Company with the Securities and Exchange Commission, in the Company's news
releases and in any oral statements made by the Company, the words or phrases
"will likely result," "expects," "intends," "will continue," "is anticipated,"
"estimates," "projects," "plans," and similar expressions are intended to
identify "forward looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. A forward looking statement is not
historical fact and whether the statement comes true is subject to risks and
uncertainties. The actual results or activities of the Company will likely
differ from the projected results or activities of the Company. Forward looking
statements include the proposed business plan of the Company, the planned
development of the Company's mining properties in Austria, the commencement
dates and the costs of diamond core drilling and exploration activities, the
future acquisition of mining properties, the procurement of future financing to
fund the Company's operations, and the compliance with environmental and other
mining laws in Austria. Factors that could cause actual results to differ
materially from projected results include, among others, risks and uncertainties
relating to general domestic and international economic and political
conditions, risks associated with mining operations in Austria, the selling
price of metals, unanticipated ground and water conditions, unanticipated grade
and geological problems, metallurgical and other processing problems,
availability of materials and equipment, the timing of receipt of necessary
governmental permits, the occurrence of unusual weather or operating conditions,
force majeure events, lower than expected ore grades and higher than expected
stripping ratios, the failure of equipment or processes to operate in accordance
with specifications and expectations, labor relations, accidents, delays in
anticipated start-up dates, environmental costs and risks, the ability of the
Company to raise financing on a favorable basis to the Company or at all, and
general financial and stock market conditions. Readers are cautioned not to put
undue reliance on forward-looking statements. In light of the significant
uncertainties inherent in forward-looking statements, the inclusion of any such
statement should not be regarded as a representation by the Company or any other
person that the objectives or plans of the Compan will be achieved or that the
Company will ever obtain significant revenue or profitability. The Company
disclaims any intent or obligation to update publicly the forward-looking
statements contained in this report, whether as a result of new information,
future events or otherwise, except as required by applicable laws.
Item 1. DESCRIPTION OF BUSINESS
Introduction.
Empire Gold Inc. (together with its wholly owned subsidiary, Argosy Mining
G.m.b.H., hereafter referred to as the "Company"), is a corporation formed under
the laws of the State of Indiana in 1940.
The Company emerged from Chapter 11 bankruptcy proceedings under a Plan of
Reorganization, which was confirmed by the United States Bankruptcy Court for
the Eastern District of Virginia (Case No. 90-33935-S) on April 10, 1992. Since
emerging from bankruptcy proceedings, the Company has never been profitable and
has not generated sufficient working capital to sustain its operations.
Subsequent to emerging from bankruptcy and throughout 1996 the Company continued
its efforts to reorganize its business affairs through the sale of its remaining
inventory of resort development lots, adoption of a new strategic business
direction, and the search for a new controlling shareholder. The Company
achieved this objective late in 1996.
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On December 17, 1996, as part of a series of transactions which resulted in
a change in control of the Company, the Company acquired all the issued and
outstanding stock in Argosy Mining G.m.b.H., an Austrian company ("Argosy"),
from Argosy Mining Corp., a Canadian company ("Argosy Mining"). As a result of
the purchase of the shares of Argosy, the Company acquired 100% of the ownership
interests in nine gold exploration properties located in Austria and the
business of the Company changed from the sale of resort home sites and panelized
public housing to gold mining and exploration, in particular the evaluation,
exploration and development of gold mining prospects located in Austria.
Until the change in control in the Company and the acquisition by the
Company of the stock of Argosy in December, 1996, the business activities of the
Company during 1996 were limited by lack of capital, no operational business
plan and the lack of paid employees. The Company had nominal revenue from
operations in 1996. During 1996, the Company had become an inactive corporation
and was actively marketed by its directors as a company available for
acquisition by another corporation seeking to merge its business into a
reporting entity.
The Change In Control and Acquisition of Argosy.
Starting in September, 1996, a series of transactions were initiated by the
Company, Argosy Mining and Mercury Immobililen Und Verwatungs A.G., a company
incorporated under the laws of Switzerland ("Mercury"), which resulted in the
sale of the Company's remaining inventory of development resort lots, adoption
of a new strategic business direction, through the sale of its wholly owned
subsidiaries, the purchase of all the shares of Argosy and the change in control
of the Company. These transactions are summarized below.
(a) By agreement, dated September 3, 1996, the Company sold 200,000 shares
of common stock at $0.25 per share to Florian Riedl-Riedenstein and 200,000
shares of common stock at $0.25 to a private investor. The subscriptions were
accepted and the shares issued by the Company in January, 1997. The $100,000
raised was used by the Company in partial payment of the costs and expenses
incurred in the preparation and closing by the Company of the divestiture of
certain assets of the Company, the purchase of all the shares of Argosy and the
change in control of the Company. Mr. Riedl-Riedenstein has since become the
Chairman, President and Chief Executive Officer of the Company.
(b) By agreement, dated November 27, 1996, which closed on December 17,
1996, Mercury purchased 54,367,551 shares of common stock of the Company from
Arendscor (Canada) Inc. representing 77.2% of the outstanding common shares of
the Company, and became the controlling shareholder of the Company. The
consideration for the purchase was $10,000. The completion of the stock purchase
was conditioned, among other things, on the simultaneous closing of the purchase
of Argosy by the Company.
(c) On November 28, 1996, the Company transferred to Danca Investments
Inc., an affiliate of Arendscor (Canada) Inc., the then controlling shareholder
of the Company, all of the interest of the Company in its three wholly owned
subsidiaries, NRC Inc., Arendswood Homes Inc. and National Building Systems Inc.
This transaction resulted in the divestiture by the Company of three of its
wholly-owned subsidiaries and certain of its remaining development resort lots.
The consideration for the transfe was the assumption by Danca Investments Inc.
of $142,874 in obligations owed by the Company to Arendscor (Canada) Inc. No
independent valuation of the assets transferred by the Company to Danca
Investments Inc. was received. However, the transaction was approved by the
shareholders of the Company at the 1995 Annual Meeting of the Shareholders.
(d) By agreement, dated November 30, 1996, which closed on December 17,
1996, the Company acquired all the issued and outstanding stock of Argosy from
Argosy Mining, an unaffiliated entity. Argosy holds interests in nine gold
mining prospects in Austria. The consideration for the purchase was C$250,000 in
cash paid by the Company and 1,000,000 shares of common stock of the Company
transferred to Argosy Mining by Mercury. The agreement provides that an
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additional 1,000,000 shares of common stoc would be transferred to Argosy Mining
by Mercury if the Company did not register the original 1,000,000 shares of
common stock with the Securities and Exchange Commission for resale within three
months following the closing date. Mercury deposited 1,000,000 shares of common
stock of the Company in escrow for this purpose. Such condition was not
satisfied and, therefore, the shares were transferred to Argosy Mining Corp.
pursuant to the terms of the escrow.
(e) By agreement, dated December 6, 1996, Erzbergbau Radhausberg G.m.b.H.,
("Erzbergbau"), the seller of the mining properties to Argosy Mining, agreed to
the sale and transfer of the properties from Argosy Mining to the Company and
the Company agreed to assume the obligations relating to the properties in the
agreement between Erzbergbau and Argosy Mining. By agreement, dated December 6,
1996, Erzbergbau agreed to the full settlement of the amount due from Argosy for
the properties of $1,000,00 by the transfer of 300,000 shares of common stock of
the Company to Erzbergbau from Mercury and Erzbergbau released the Company from
any further obligations set forth in the agreement between Erzbergbau and Argosy
Mining and in the agreement referred to above.
(f) On December 12, 1996, Mercury entered into Put/Escrow Agreements with a
number of shareholders of the Company. The agreements provide that certain
shareholders may require Mercury to purchase additional shares of common stock
from them at $0.10 per share during a period from September 12, 1997 to
September 27, 1997. The put option expires if the shares covered have been
registered by the Company with the Securities and Exchange Commission for resale
in the United States and have been freely tradable at a price above $0.10 for
more than ten consecutive days after registration and prior to receipt by the
Company of a notice of exercise. As part of the agreement, the Company deposited
cash of $100,000 in escrow equal to one-half the option price, and Mercury
deposited 1,000,000 shares of the common stock of the Company held by Mercury to
secure the Put/Escrow Agreement. The Put/Escrow Agreements cover a total of
2,000,000 shares of the Company, including 1,223,200 shares held by Arendscor
(Canada) Inc., 88,000 shares held by Edward Jan Smith (a director of the
Company), 100,000 shares held by Matthew Gaasenbeek, III (a director of the
Company), 8,800 shares held by Lisa Hoekwater, 240,000 shares held by John B.
Overzet (a former director of the Company), 100,000 shares held by Arthur Walker
(a former director of the Company), and 240,000 shares held by Jack Wrobel (a
former director of the Company). On September 24, 1997, the Put/Escrow
Agreements were terminated and the $100,000 deposit plus interest of $3,608 was
returned to the Company.
As a result of these transactions, the Company achieved its objective of
reorganizing its business affairs through the sale of its subsidiaries which
held remaining inventory of development resort lots and the adoption of a new
strategic business direction.. The Company is now engaged in the evaluation,
exploration and development of gold mining prospects., in particular the
location, evaluation, acquisition, exploration and development of precious metal
mining prospects and to that end to own, acquire, improve, develop, sell, lease,
and convey lands or mineral claims or any right, title or interest therein, and
to search, explore, prospect or drill for and exploit ores and minerals therein
or thereupon.
Exploration Properties
The Company, by and through Argosy, holds 100% of the ownership interests
in nine gold prospecting properties in Austria, as listed below:
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<TABLE>
<CAPTION>
Property Location Square Kilometers
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<S> <C> <C>
Schellgaden North and South Salzburg 39.4 sq. kms.
Schellgaden South North Carinthia 37.4 sq. kms.
Goldeck West - Siflitz and South Carinthia 27.6 sq. kms.
Goldeck East - Siflitz South Carinthia 31.6 sq. kms.
Kreuzeck West
Rabant-Gurskerkammer -
Fundkofel and South West Carinthia 23.9 sq. kms.
Kreuzeck East - Lengholz South Carinthia 20.5 sq. kms.
Kliening and East Carinthia 27.4 sq. kms.
Kliening West - Buchbauer East Carinthia 27.4 sq. kms.
Strassegg-Gasen North Styria 12.3 sq. kms.
</TABLE>
All these properties have been centers of gold mining activities dating
back at least 1,000 years with intermittently flourishing gold production
continuing into the late 19th century. Repeated attempts to explore and revive
the areas' gold potential during the first half of the 20th century were
curtailed by political instability and the two World Wars. Extensive underground
workings from the old mining periods are still accessible at the Schellgaden,
Goldeck Siflitz and Kreuzeck gold properties.
In 1995, Argosy conducted underground channel sampling programs in old
mines on the Schellgaden and Goldeck Siflitz properties to test for the gold
potential of the in situ ore. Subsequently, four diamond core drill holes were
made at the Schellgaden North property and three at the Goldeck Siflitz
property. With analysis of previous exploration data and the new information
generated by the channel sampling and core drilling, a new understanding of the
Schellgaden North gold property's geology and structural model reveals what
management of the Company believes to be excellent potential for this ancient
mining area.
In order to further examine the potential of these sites, the Company
commenced a diamond core drilling program to be conducted over an area of 500 by
1500 meters in the Schellgaden North property, which includes old workings. The
first of eight diamond core holes was drilled to a depth of 300 meters. The
remaining seven core holes are also expected to be drilled to a depth of
approximately 300 meters in the Schellgaden North property in the summer and
fall of 1998. The cost of this project is estimated at approximately $600,000,
which the Company will seek to fund through equity or debt financing. There can
be no assurance that the Company will be successful in such funding efforts.
After the core is drilled, the samples will be analyzed for geologic attributes
and the presence of gold. Based on the results of the core samples, the Company
will decide whether to drill additional core samples to confirm or support its
findings, develop a program to develop and prove the reserve in the area, or
abandon the site.
It is expected that should a gold reserve be found, confirmed and proven,
that the Company will seek either to enter into a joint venture agreement with
an operator to extract the gold from the area or will sell the property outright
to realize its value. There can be no assurance that a gold reserve will ever be
found, confirmed and proven or that the Company will ever be able to realize the
value of the find through a joint venture arrangement or sale of the property.
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Although the Schellgaden North property is the first priority for further
exploration, an evaluation of the future exploration potential of the other
eight properties is ongoing under the direction of Dr. Hans R. Klob, Vice
President, Exploration of the Company. The Company may engage in prospecting and
development of core drilling programs with respect to the other properties.
In addition to the present sites held by the Company, it is evaluating
other potential acquisitions as well, including sites in Ghana, Africa and
British Columbia, Canada. There can be no assurance that the sites under
evaluation will be acquired by the Company. While the evaluation continues in
Ghana, management has been focusing its efforts in British Columbia Canada. The
Company has identified a number of sites in the Tulameen area of British
Columbia Canada. See "ITEM 12" CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS".
The Tulameen project area is located about 175 km. east of Vancouver,
British Columbia, Canada which is easily accessible by road, west of the mining
town of Princeton. The Tulameen project area is an important part of the
Similkameen Mining District, known for over a century for precious and base
metals mining, and for extensive platinum and vanadium bearing iron deposits. It
has produced about 40,000 oz. of platinum (nuggets of Pt and Pt-Fe-alloys) and
at least four times that amount in Gold over the past 100 years from placer
deposits in streams draining the area of what is known as the Tulameen
Ultramafic Complex.
The Tulameen Ultramafic Complex is described as the southern most
Alaskan-type zoned periodotitic intrusion about 40 km. north of the
U.S.-Canadian State Border. Geologically, it is situated in a position at the
southern end of the Canadian Intermontane Belt or at the northern end of the
Eastern Cascades in Washington, the older of the two U.S. West Coast Island Arc
Terranes.
An initial investigation by the Company discovered a circular structure
around the Tulameen Ultramafic Complex averaging 28 km. in diameter: the SW to
the W, NW, N and NE trace of this structure is carved out by the Tulameen River,
the southern and southeastern contour is followed by Whipsaw Creek. This
structure is interpreted as a deep-seated volcanic (crypto-volcanic) expression
that could have originated along an island arc (north end of Eastern Cascades
Island Arc).
Internally, smaller circular (volcanic) structures are indicated, one with
a diameter of about 2 km.. is bounded to the east by the middle part of Granite
Creek. At a closer look into the geological-structural setting of the
Tulameen-Blakeburn Tertiary basin this zone appears as a young collapsed caldera
from which a series of Tertiary acidic to basaltic volcanic rocks and
volcanoclastics was produced, intermixed with sedimentary and organic (coal)
basin sediments. The Princeton Basin on the eastern margin of the circular
structure appears of a similar nature. Possibly due to volcanism-originated heat
the coal deposits of both basins have reached a high maturity (Type A and B
Bituminous Coal). Platinum and gold-contents in undisturbed coal from Blakeburn
have been assayed from 2 to 170 ppb and 2 to 38 ppb, respectively. However,
along deformational deep seated faults coal has yielded values higher than
10,000 parts per billion ("ppb") platinum, 6,100 ppb palladium and 22 ppb
Iridium.
In addition to the potential for platinum group elements and gold, which
will be the Company's main goal for exploration and development, the project
area also hosts one of North America's larger magnetite iron-vanadium deposits,
explored by drilling from the 1960's to the early 1990's. Apart from its iron
and vanadium potential, magnetite is also used extensively in the coal washing
process. Furthermore, huge deposits of industrial grade olivine have been
identified within the dunitic core of the Tulameen ultramafic within the project
area. Olivine as an industrial mineral has a growing importance as an
environmentally accepted mineral product in the industry for abrasives and
related materials.
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Along the northern (Tulameen River) and southern (Whipsaw Creek) trace of
the main circular structure, as well as internally a number of small mineralized
pipes of ultramafic (Britton Creek PGE-Diamond-bearing Breccia Pipe) to
porphyritic character (with gold, silver, molybdenum, base metals) have been
observed.
The development of the Company's new business plan is intended to be
financed by future debt or equity financing. There can be no assurance that the
business plan of the Company will be successful and results in significant
revenue or profit to the Company. The gold mining properties acquired by the
Company are non-producing prospects where management of the Company believes
that precious metal, in particular gold, may be present in commercially viable
quantities. The development of the business plan of the Company is dependent, in
part, on the ability of the Company to raise additional financing to fund the
proposed development activities and to pay operating expenses. There can be no
assurance that the Company will be able to procure such additional financing on
terms acceptable to it or at all. Any equity financing by the Company will
likely result in dilution of the interests of present shareholders. The search
for precious metal deposits that can be profitably produced is extremely high
risk and development of any deposits identified require large capital outlays
and operational expertise.
Austrian Mining Laws and Regulations
The properties presently held by the Company are located in and subject to
the laws of the Republic of Austria. In Austria, public duties and
responsibilities are divided between the Republic of Austria and its nine
provinces (Vienna, Lower Austria, Burgenland, Styria, Upper Austria, Carinthia,
Salzburg, Tyrol, Vorarlberg). According to the 1975 Mining Law, mining in
Austria is controlled by special federal authorities ("Mining Authorities").
Mining Authorities of first stage are the Regional Mining Authorities,
special and professional federal authorities, and the Federal Minister for
Economic Affairs (second and appealing stage). Mining Authorities report
directly to the Federal Minister. There are six regional mining authorities in
Austria, located in Vienna (Vienna, Lower Austria, Burgenland); Graz (East- and
West-Styria), Leoben (Upper-Styria); Klagenfurt (Carinthia); Innsbruck (Tyrol,
Vorarlberg): Salzburg (Salzburg, Upper Austria). The Federal Ministry for
Economic Affairs (Vienna) is divided into several departments. Mining is subject
to Department VII ("Supreme Mining Authority").
The Mining Authorities are charged with significant duties and
responsibilities, including issuance of mining licenses, prevention of dangers,
legislation, optimal use of deposits and education of miners and foremen.
The legal framework for the Austrian mining industry is the 1975 Mining
Law, as amended. This law applies to the prospecting, exploration, exploitation,
storage and processing of mineral raw materials "free for mining," "state owned
mineral raw materials" and "land owner's mineral raw materials." The law also
applies to mining carried out in the course of exploration and exploitation,
processing of other mineral commodities and exploration and investigation of
geological structures suitable for storing liquid and gaseous hydrocarbons, and
storing hydrocarbons etc. These provisions also apply to mining aspects of
exploration and supervision of activities in respect of geothermal energy and
the utilization of geothermal heat, where tunnels, shafts and wells of more than
100 meters are used, the exploration of the earth crust for its suitability for
storing any substances and the utilization of workings in closed down mine sites
and other purposes than the production of mineral commodities.
Exploration is considered to be divided into two phases: the initial
search, followed by investigation. The permits required vary slightly depending
upon the classification of minerals:
Mineral raw materials free for mining:
1. All mineral raw materials from which iron, manganese, chromium,
molybdenum, tungsten, vanadium, titanium, zirconium, cobalt, nickel, copper,
silver, gold, platinum and PG-elements, zinc, mercury, lead, tin, bismuth,
antimony, arsenic, sulfur, aluminum, beryllium, lithium, rare earths or
compounds of these elements can be produced, in as far as they are not listed
below or represent state owned, land owner's or other mineral raw materials.
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2. Gypsum, anhydrite, barite, fluorite, graphite, talc, china clay (kaolin)
and leucophyllite.
3. All types of coal and oil shale.
Prospecting for "free for mining" mineral raw materials requires a
prospecting permit, entitling the holder to search for such minerals within the
jurisdiction of the Regional Mining Authority. It does not confer an exclusive
right. Conversely, an exploration license confers an exclusive right for "free
for mining" mineral raw materials within a specified area located in the area of
jurisdiction of the respective Regional Mining Authority. Mining of those
mineral raw materials requires a mining-permit.
"State owned mineral raw materials" belong to the federal state and
comprise the following types of minerals:
1. Rock salt and all salt occurring together with rock salt.
2. Hydrocarbons.
3. Minerals containing uranium and thorium.
The rights for exploration of these minerals can be granted to persons
meeting certain criteria through a civil right contract by the Federal Minister
of Economic Affairs in consent with the Federal Minister of Finance on behalf of
the state. The right to explore for salt has been ceded by law to an Austrian
public company in the salt business.
"Land owner's mineral raw materials" are comprised of the following
minerals:
Magnesite, mica, illite clay and other expandable clays, quartz, quartz
rock, and quartzitic sand, in as far as suitable for the manufacturing of glass
or fireproof products or as starting material for the manufacture of cement;
clays, in as far as suitable for the manufacture of fireproof or acid-proof
products, cements, brick work and other ceramic products; dolomite, in as far as
suitable for the manufacture of fireproof products; limestone, in as far as
suitable for the manufacture of quick lime or as starting material for the
manufacture of cement or as aggregate for metallurgical processes; marl, in as
far as suitable for the manufacture of cements; basaltic rock, in as far as
suitable for the manufacture of fireproof products or of rock wool; bentonite,
kieselgur, asbestos, feldspar, trass, andalusite, sillimanite and disthene.
A prospecting permit to search followed by an exploration permit to
investigate is needed for the above mentioned minerals. Both permits are issued
by the Regional Mining Authority.
All minerals not listed above are subject to the category of "other mineral
raw materials."
Prospecting on the surface for "other mineral raw materials" and their
production requires a license according to the 1994 Trade Law. In case of
underground activities, commencing of mining has to be reported to the Regional
Mining Authority.
The holder of mining rights enjoys certain rights. Under certain conditions
he may - in the course of exploration and production utilize other minerals not
listed in his mining right title as well. The Mining Law furthermore allows use
of mine waters. Mine waters may be utilized when ever required for mining
operations as long it does not merge with permanent surface waters.
The holder of the mining rights may also engage himself in processing
minerals and their benefication (pelletizing, bricketing, drying, roasting,
carbonizing, coking, gasifying, liquefying and solution) of minerals or making a
suspension during processing in accordance with operational and local conditions
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and further processing to a saleable product. He is also entitled to use mines
for purposes other than exploitation of minerals to bring in or to store goods
in geological structures in as far as these operations do not interfere with the
production and the storage of minerals.
The holder of the mining rights is faced with special obligations as well.
Opening and closing of mines have to be announced in right time in advance.
During mining operations the holder of the mining rights has to take care for
life and health of persons, objects in the property of others and not
transferred to him for use to protect the environment, deposit and surface to
provide reclamation of surface after ending mining activities. Concerning the
protection of the environment he is obliged to do everything to prevent any
permanent damage to soil, vegetation and livestock.
If a person not belonging to the mining company comes to death or suffers
from injury to his body or health or an object is damaged by a mining operation
this is referred as a mining damage.
Mining activities must be carried out in such a way to avoid emissions in
the best way according to the latest technology. It's the duty of the holder of
the mining rights to follow up mine maps under the supervision of a mine
surveyor. In the case of any accident occurring in other mining operations the
holder of the mining rights is obliged to send rescue men and equipment upon
request in as far as this does not disturb its own operation.
Mineral production and the storage of any hydrocarbons in geological
structures has to be done in accordance with a written plan, which needs to be
approved by the Regional Mining Authority in respect of the operations envisaged
and the measures planned. This is not applicable to small enterprises. Small
enterprises are mining enterprises or independent operational units of a mining
enterprise employing less than 40 persons on regular basis. In case of land
owners minerals production may be commenced or recommenced after an interruption
of more than five years on the base of exploration and production plans approved
by the Regional Mining Authority.
Where a mining enterprise consists of several independent units, the holder
of mining rights has to appoint a manager, a deputy manager and technical
supervisors for each unit. In small enterprises, where operational hazards can
be expected to remain at a low level, multiple appointments of responsible
persons are allowed. The holder of the mining rights also has to appoint a
responsible mine-surveyor for each mine. Multiple appointments by several
holders of mining rights are allowed as well. Any appointment is subject to
approval by the Mining Authority.
Holders of mining rights jointly owning a mining right title or jointly
entrusted with the use of a mining right title and also single holders of mining
rights residing abroad permanently or legal persons or commercial law companies
are obliged to appoint a person living in Austria, authorized to receive legally
valid orders and written communications by the Mining Authorities.
Mining areas must be clearly entered in the land use plan. Buildings and
other installations not serving the purpose of mining operations may be
constructed in mining areas upon obtaining a special permit by the mining
authority only.
General Considerations.
The value of the Company's properties and exploration results may be
affected by the prices of precious metals, especially gold, and by the cost of
extracting the precious metals. During 1997, gold prices fluctuated from a low
of $281.50 to a high of $366.00 per ounce. During the last ten years, gold
prices have averaged less than $400 per ounce. Modern heap leach technologies
has allowed lower grades of ore bodies to be mined. For several years, this
trend created a resurgence in the United States and internationally in the
traditional gold producing areas, of exploration activity for gold in the
minerals industry.
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The availability of mining prospects is dependent upon the Company's
ability to negotiate leases or concessions with property owners or to locate
claims pursuant to laws of the particular jurisdiction.
Other than its mining agreements, the Company has no patents, trademarks,
licenses or franchises material to its operations. The properties in which the
Company has an interest in Austria are accessible throughout the year. If
mineralized deposits are discovered under claims or leases in which the Company
owns an interest, the economic viability of the deposit may depend upon numerous
factors not within the Company's control, including the selling price of
minerals, the extent of other domestic production, proximity and capacity of
water and mills, and the effect of state, federal or foreign government
regulations.
Competition in the Company's industry occurs almost exclusively in the
acquisition of mining properties because the market price for gold is determined
by market factors and conditions that are beyond the Company's control. The
exploration for, development of and acquisition of gold and other precious metal
properties are subject to intense competition. The principal methods of
competition include: (i) bonus payments at the time of lease acquisition, (ii)
delay rentals and advance royalty payments, (iii) the use of differential
royalty rates, (iv) the amount of annual rental payments, (v) exploration and
production commitments by the lessee and (vi) staking claims. Companies with
greater financial resources, larger staffs and labor forces, and more equipment
for exploration and development may be in a more advantageous position than the
Company to compete for such mineral properties. Management believes that
competition for acquiring mineral prospects will continue to be intense.
The mining industry, including the business of Company, must follow strict
local, state and federal regulations imposed in each country where it operates
to maintain environmental quality. As a result, the Company is subject to the
environmental regulations in Austria with regard to mining properties. To the
best knowledge of management, the Company's Austrian project complies with all
present environmental regulations and laws. Continued compliance is not
anticipated to result in any additional material capital and/or operating costs.
However, it can not be known at this time what additional future laws and
regulations might be adopted in Austria or elsewhere, nor their effect, if any,
on the Company.
As of May 31, 1998, the Company did not have any employees. Its directors
and officers, with the exception of the Chairman Florian Riedl-Riedenstein, are
not engaged full time in the prosecution of the Company's business. The Company
has retained the services of several consultants on a part time basis. One of
these consultants, a geologist, Dr. Hans Klob has been engaged, to assist it in
its operations, on a part time basis and has been appointed Vice President,
Exploration of the Company. Dr. Klob served in a similar capacity for Argosy
Mining. No employees are expected to be hired throughout this fiscal year unless
the activities of the Company expand and its new business plan develops.
However, the Company intends to hire consultants to assist it in its operations.
Item 2. DESCRIPTION OF PROPERTY
Summary.
The Company, by and through its wholly owned subsidiary Argosy, owns 100%
of the ownership interests in nine mining properties located in Austria. All
nine properties have been centers of gold mining activities dating back at least
1,000 years with intermittently flourishing gold production continuing into the
late 19th century. Repeated attempts to explore and revive the areas' gold
potential during the first half of the 20th century were curtailed by political
upheaval and the two World Wars. Access to the nine properties of the Company in
Austria is favorable as the area has a well developed infrastructure and none of
the properties lie in remote mountain areas.
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The following is a description of the Company's mineral properties.
Schellgaden North and Schellgaden South. The Schellgaden North property is
an unimproved exploration property without known reserves which extends from
South Salzburg into North Carinthia Province, Austria. The property consists of
39.4 square kilometers. The property consists of 82 leases, 36 leases in
Salzburg and 46 leases in Carinthia. The current lease term is for a two year
period, January 1, 1998 to December 31, 2000. It is in this property that the
initial exploration and evaluation activities of the Company are scheduled to
take place. The Company has spent approximately $239,000 on exploration and
evaluation of the property during the year ended December 31, 1997.
The Schellgaden North site is part of a historically significant gold
mining district. A series of ancient gold mines lies along the outcrop of a
gneiss-micaschist-amphibolite series, called the Storz and Kareck Formations on
the eastern rim of the Tauern Window. The gold ore is a fine grained stratabound
quartz-sulfide layer, that occurs in three different mineralized horizons.
The Schellgaden South Property is an unimproved exploration property
without known reserves which is located in Northern Carinthia, Austria. The
expenditures to date on the property have been limited and comprised of
evaluation costs and lease maintenance costs. The property consists of 37.4
square kilometers and is located to the south of the Schellgaden North property.
This area is less significant than Schellgaden North from a historical viewpoint
in terms of number of mines once operating and the extent of ore recovered. The
property consists of 75 leases in Carinthia. The current lease term is for a two
year period, January 1, 1998 to December 31, 2000.
Access to the Schellgaden North and South properties is by Tauemautobahn
A-10, the major freeway link between Munich-Salzburg-Klagenfurt-Italy. A federal
highway, B-99, runs parallel. Small access roads frequently lead into the
concession area over the whole North-South extension of about 29 kilometers
between the town of St. Michael in Salzburg and Gmund in Northern Carinthia.
Management determined to commence operations on this property as reported
gold grades were sufficiently high and underground workings from the old mining
operations periods are still accessible at the site. It was on the Schellgaden
North site that the prior owner, Argosy Mining, conducted limited exploration
activities. During the first phase of this program conducted by Argosy Mining,
the old underground mines were channel sampled and assayed by Bondar-Clegg in
Vancouver, Canada after sample preparation by The University of Salzburg
Geoscience Lab. The samples showed evidence of gold with grades ranging at an
average of 5-15 g Au/t. During the second phase four diamond core drill holes
were drilled to a maximum depth of 100 meters in the south of the Stublbau Mine
to learn about the tectonic structure and to test the southern continuation of
the ore horizon of the mine. Drilling started in September 1995 and ended in
October 1995. Based on the results of the study of the consultant geologist for
Argosy Mining, Dr. Hans R. Klob, who now has been appointed Vice President,
Exploration of the Company, demonstrated the possibility that an area once
viewed as medieval gold mining following along a single stratabound
quartz-sulfide-gold layer may be a horizon of at least four different ore
bearing levels of 2 to 10 meters thickness with one to several single quartz-ore
beds of centimeter- to meter thickness.
The core drilling samples showed two systems of en echelon type block
faulting, one striking North-South with varying down-thrust to the east, the
other striking West-East with down thrust to the North, usually with small
vertical throw amounts. The formation usually dips gently to the east.
In the fall of 1997 drilling of the first of eight planned 300 meters deep
diamond core drill holes was completed. The eight projected drill holes are to
be placed in a pattern over a 500 meters north/south to 1,500 meters west/east
exploration block - the Stublbau Block. As the initial hole of the Schellgaden
North Gold Project this hole's purpose was to acquire maximum knowledge of the
lithology, the mineralogy and the tectonic structure of the rock sequence of the
Kareck Formation and at the same time to test the new model described above.
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Detailed geological logging of the 295 meter long drill core showed an
epi-metamorphic sequence of andesitic to rhyolitic volcanics and their
respective volcanoclastics intermixed with marin sediments. At a present drill
depth of 295 meters, drilling had to be stopped for the winter in the lower
Kareck Formation at the boundary to the lower Storz Formation. Several
Schellgaden-type gold-sulfide-quartz layers were recognized at the following
depths::
1. 22.85 - 23.35 meters
2. 31.10 - 31.25 meters
3. 84.70 - 85.00 meters
4. 218.10 - 220.10 meters
5. 239.18 - 242.10 meters including old workings
Preliminary results of geochemical analyses of 372 core samples for gold
and 36 trace elements show characteristic behavior of various groups of elements
with reference to the respective lithologies. The distribution of anomalously
higher gold values ranging from 15 to 12,920 parts per billion ("ppb") (1,000
ppb = 1.0 grams per ton) over the length of the drill hole supports the model of
a multilayer system composed of several ore layer-bearing horizons at the
following depths:
1. 6.00 to 33.00 meters, 10 individual gold layers with values
ranging from 28 to 731 ppb, corresponding to Schulterbau Horizon;
2. 43.72 to 56.00 meters, 3 individual gold layers with values
ranging from 16 to 34 ppb;
3. 76.00 to 111.00 meters, 8 individual gold layers with values
ranging from 16 to128 ppb;
4. 136.00 to 174.00 meters, 3 individual gold layers with values of
15 ppb, the central of the three layers contained a tungsten
anomaly, corresponding to the Stublbau Horizon;
5. 209.20 to 225.50 meters, 4 individual gold layers, with values
ranging from 15 to 12,920 ppb;
6. 239.18 to 242.10, 1 individual gold layer, old workings, no core
sample available;
7. 261.00 to 275.00, 3 individual gold layers, with values ranging
from 15 to 137 ppb; and
8. 284.00 to 291.00, 1 individual gold layer, with values of 15 ppb,
corresponding to the Pritzkar Horizon.
As a result of the preliminary analysis of the drill data the revised model
of multiple gold-ore-layers located in several ore bearing horizons within the
Kareck-Formation provides support of the Company's exploration strategy and the
Schellgaden depositional model. Even though the Kareck-Storz-Formation boundary
was not yet reached at a drill depth of 295 meters (projection in model between
280 and 300 meters) this original projection will not be exceeded much. The
formation boundary is expected within the next 10 to 30 meters.
Detailed correlation analysis between groups of elements and lithologies is
ongoing with results pending, but showing distinct geochemically defined rock
units along the drill profile. Also correlations between the geochemistry of
underground channel samples, the 1995 drill core samples and the current core
are still outstanding. This pending work should demonstrate the continuity of
the ore horizons described above from one location to the other, even if -
probably due to the unevenness of the depositional environment, the basin floor
- - individual ore layers (volcanic exhalites) seem to be highly variable in their
thickness and lateral extension as well as their gold content.
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During the summer and fall of 1998, the Company intends to continue its
core drilling program over an area of 500 by 1500 meters on the property
overlying the main old workings. Work will continue on the remaining seven of
eight diamond core holes which are expected to be drilled to a depth of
approximately 300 meters. The projected cost of this project is approximately
$600,000. After the core is drilled, the samples will be analyzed for geologic
attributes and the presence of gold by Bondar-Clegg, Canada or another
acceptable assay laboratory. Based on the result of the core samples, the
Company will decide whether to abandon the site, drill additional core samples
to confirm or support its findings or develop a program to develop and prove the
reserve in the area. The program of the Company is intended to confirm the
results of the prior study conducted by Argosy Mining and to determine the
potential gold reserve in the area.
The Company has of procured all necessary permits for the planned
Schellgaden North diamond drilling program scheduled for the summer and fall of
1998. After the work is completed, or at year's end, the Company will submit a
work report to the Mine Department Office. This is for the purpose of
continuation and/or renewal of its respective claims. Management believes that
this work program is sufficient for all nine Austrian properties held by the
Company to be renewed at year end for an additional two year period, but there
can be no assurance of this result.
Goldeck West - Siflitz and Goldeck East - Siflitz. The Goldeck West-Siflitz
Property are unimproved exploration properties without known reserves which are
located in South Carinthia, Austria. The expenditures to date on the properties
have been limited and comprised of evaluation costs and lease maintenance costs.
The property area is of 27.6 square kilometers and consists of 57 leases. The
current lease term is for a two year period, January 1, 1998 to December 31,
1999. This property was acquired by Argosy directly from the Austrian Government
in 1995. The property is located within the Kreuzeck-Goldeck Gold district in
the southern part of the Austrian Province of Carinthia. This district has been
the site of numerous mines for gold and antimony from the early middle ages on
and the last of the mines closed down in the early 1950's. The Goldeck
East-Siflitz Property is located in South Carinthia, Austria. The property
consists of 31.6 square kilometers and consists of 64 different leases. The
current lease term is for a two year period, January 1, 1998 to December 31,
1999. The property is also part of the Kreuzeck-Goldeck Gold district and lies
to the east of the Goldeck West-Siflitz property. Argosy obtained the
exploration rights to this area directly from the Austrian Government in 1995
when studies and drilling at Goldeck Siflitz area indicated a continuation of
gold bearing structures further to the east.
Access to the Goldeck West - Siflitz and Goldeck East - Siflitz is by a
federal highway, B-100, which runs East/West along the Drau River. A dense
network of secondary roads accesses the two properties, which have been historic
centers of gold mining.
The Kreuzeck-Goldeck Mountains cover an area of over 600 square kilometers
with predominantly retrograde mica schist, garnet-mica schist intercalated by
quartzites. Bands of marble, rare in the Kreuzeck Mountains in the west, reach
greater abundance and thickness in the Goldeck Range in the east. Metavolcanic
intercalations are frequent throughout the whole area, with basalts and
rhyolites as well as andesitic to rhyolitic meta-tuffs and tuffites. While
amphibolite (meta-basalt) bands in the west are maximally 30 meters thick, in
the eastern Kreuzeck up to 500 meters have been observed. Numerous small
granodiorite intrusions of Alpidic age (26-40 million years) have intruded the
metamorphic series. At the Goldeck Range, a direct continuation of the Kreuzeck
Mountains in the west across the Drau Valley, a sometimes incomplete threefold
repetition of mixed pelitic-psammitic-volcanic lithologies and carbonates is
typical.
A large number of ore occurrences of different types have been known and
mined in the Kreuzeck-Goldeck Range, many believed stratabound, a number bound
to massive tectonic shear zones, especially in the Goldeck-Siflitz area, with
gold-arsenopyrite-stibnite associations. During the height of mining, between
1460 and 1560, despite primitive mining methods and poor recovery rates, it is
reported that annual production over the whole area may have reached a maximum
of 4,000 kilograms of gold.
The Company's exploration activities are currently focused on the
Schellgaden North property. Exploration programs will be developed for Goldeck
West - Siflitz and Goldeck East - Siflitz based on the availability of capital
and developments on the Schellgaden North property.
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Kreuzeck West - Rabant. The Kreuzeck West - Rabant Property are unimproved
exploration properties without known reserves which are located in Western
Carinthia Province and extends into East-Tyrol Province, Austria. The
expenditures to date on the properties have been limited and comprised of
evaluation costs and lease maintenance costs. The property consists of 23.9
square kilometers and is made up of 44 leases in Carinthia and 5 leases in East
Tyrol. The current lease term is for a two year period, January 1, 1998 to
December 31, 1999. This property is the western most property in the
Kreuzeck-Goldeck Gold district and has been an area of active mining from the
Middle Ages to the 1950s when the Rabant and Gurskerkammer Mines were closed
down by the Bleiberger Bergwerks Union ("BBU"). BBU mined the area for lead,
zinc and antimony. The BBU still owns the mining rights around the Gurskerkammer
Mine, but Argosy was granted exploration rights covering the whole area, and the
mining rights are being reviewed by the Carinthian Department of Mines. The
Company expects that the rights granted to the BBU will be annulled although
there can be no assurance of this. Until, and if, the rights are lifted, the
Company cannot conduct exploration operations in the area.
Access to the Kreuzeck West property is by a federal highway, B-100 which
runs East/West along the Drau River. A dense network of secondary roads accesses
the property, which has been a historic center of gold mining.
From the west of the lease block to the east, former mining activities seem
to reveal a certain trend or zoning from predominantly stibnite ore bodies
(Rabant) to stibnite and arsenopyrite-gold at the center (Gurskerkammer Mine) to
gold (silver) in the east (Fundkofel Mine). While the Rabant-area stibnite ore
bodies with a lenticular to layer-like shape, similar to the Gurskerkammer Mine
stibnite ore and arsenopyrite-gold mineralizations, are said to be stratiform,
the Fundkofel Mine gold was found in vein-type, discordant structures.
At the Knappenstube mine, north of Fundkofel, only a massive sulfide ore
body is distinctly stratabound. Gold values vary strongly, are generally very
low and of no commercial interest. Thickness of the massive sulfide ore varies
from 0.1 to 2.2 meters, with additional impregnations up to three meters in the
host rock. Ore minerals are pyrite, pyrrhotite, sphalerite, chalcopyrite, galena
and arsenopyrite. High gold grades seem to coincide with galena-quartz veining
penetrating massive sulfide ore.
The Gurskerkammer Mine is easily accessible and the drill target would be
arsenopyrite-gold impregnated light green meta-tuffite in the hanging wall of
stibnite ore, dipping 45o NNE with grades ranging over 10 g Au/t. Stibnite was
mined from lenticular stibnite-quartz ore bodies along a major shear zone with
graphitic and argillaceous material.
The Rabant Mine is no longer accessible, as most entrances have collapsed.
The lenticular stibnite ore bodies were reported to contain fine intergrowth of
pyrite and arsenopyrite with gold contents ranging from 1 to 35 g Au/t.
The Fundkofel Mine offers very limited access. Gold was mined in this
location in the late Middle Ages. In the 1920s, a major mine development effort
took place with tunneling along three different levels, entrances to which have
collapsed. The mine is characterized by a series of chlorite-amphibolite schist,
meta-tuffites and mica schists trending West-East and dipping 34-40o north. They
are intersected by steeper dipping to vertical gold-bearing veins. These veins
normally pinch out within the mica schist, but open up in the metavolcanics.
More exploration, core samples and review needs to be done in this area
prior to ascertaining the potential for gold extraction. However, the work
cannot be done until the rights of the BBU are resolved.
The Company's exploration activities are currently focused on the
Schellgaden North. Exploration programs will be developed for Kreuzeck West-
Rabant based on the availability of capital and developments on the Schellgaden
North property.
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Kreuzeck East - Lengholz. The Kreuzeck East - Lengholz property are
unimproved exploration properties without known reserves which are located in
South-Western Carinthia, Austria. The expenditures to date on the properties
have been limited and comprised of evaluation costs and lease maintenance costs.
The property consists of 20.5 sq. kms. and is made up of 42 leases. The current
lease term is for a two year period, January 1, 1998 to December 31, 1999. The
Kreuzeck East property covers the southern slope of the Eastern Kreuzeck
Mountains between Steinfeld in the west and Lessnig in the east. The property
includes two famous old mining districts, the rich gold mines north of Lengholz
and the stibnite deposits of Lessnig-Radlberg. The mines in this area have been
shut down and inaccessible for many years. At both old mine centers, mica
schists with minor greenschists are host rock to the mineralization, with a
general East-West strike and 35-60o dip to the north. The Lengholz mine was
opened in 1544 when gold was discovered and closed down in the 17th century.
Access to the Kreuzeck East property is by a federal highway, B-100 which
runs East/West along the Drau River. A dense network of secondary roads accesses
the property, which has been a historic center of gold mining.
The Company's exploration activities are currently focused on the
Schellgaden North. Exploration programs will be developed for Kreuzeck East -
Lengholz based on the availability of capital and developments on the
Schellgaden North property.
Kliening and Kliening West - Buchbauer. The Kliening and Kliening West
properties are unimproved exploration properties without known reserves which
are located in Eastern Carinthia, Austria. The expenditures to date on the
properties have been limited and comprised of evaluation costs and lease
maintenance costs. Each property consists of 27.4 square kilometers and are made
up of 54 different leases. The current lease term is for a two year period,
January 1, 1998 to December 31, 1999 and January 1, 1996 to December 31, 1998
respectively. The Kliening Gold Mining District lies west of Bad St. Leonhard in
the Upper Lavant Valley, the NNW of the village of Kliening in eastern
Carinthia. At Kliening, at least nine different steeply Northeast dipping veins
have been reported. Mineralized structures have been traced over 1000 meters
along strike, average spacing between the veins at about 50 meters.
Access to the Kliening properties from Vienna or Klagenfurt is over the
Austrian Sudautobahn, the federal highway A-2. The properties are located
between the town of Bad St. Leonard/Lavanttal and the Klippitztorl mountain
pass, about 10 kilometers to the west, with a secondary road link via the old
gold mining town of Kliening.
The polymetallic sulfide association is dominated by arsenopyrite with
pyrite, galena, ag-tetrahedrite, and bismuth. Gold also occurs in
milimeter-grains as free gold within quartz and chlorite. Host rocks are
metamorphic schists. A program of core samples in the 1980's were inconclusive
due to high losses of core material.
At Kliening West, the property contains a geologic zone with banded
gneisses, marble and schists intruded by pegmatitic bodies. Main faulting is NW
trending, minor faulting NE. The gold mineralization is bound to NW striking
quartz-arsenopyrite veins along sheer zones.
In 1990, samples taken from Kliening West were analyzed and yielded 0.2 g
Au/t to 0.40 ounces Au/t.
The Company's exploration activities are currently focused on the
Schellgaden North. Exploration programs will be developed for Kliening and
Kliening West - Buchbauer based on the availability of capital and developments
on the Schellgaden North property.
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Strassegg-Gasen. The Strassegg-Gasen Property is an unimproved exploration
property without known reserves which is located in Northern Styria, Austria.
The expenditures to date on the property have been limited, comprised of
evaluation costs and lease maintenance costs. The property consists of 12.3
square kilometers and is made up of 25 leases. The current lease term is for a
two year period from January 1, 1997 to December 31, 1998. The Strassegg-Gasen
Property is located about 1 kilometers east of the district center Bruck/Mur,
province of Styria. Extensive, but shallow, underground mining of gold and
arsenopyrite dates back to the Middle Ages. A great number of collapsed mine
entrances, pits and mine dumps have been mapped by an exploration project
conducted in the 1980s.
The Strassegg-Gasen property lies in Northern Styria, south of the town of
Murzzuschlag in the Mur Valley and east of the industrial center of
Bruck/Mar-Kapfenberg. Access is by the main Vienna-Klagenfurt road link
A-2/S-6/S-35. The property is bounded by a provincial road, which connects to
main highways. A dense network of small roads and trails provides easy access to
the property, which has been a center of historic mining activities.
At the Strassegg-Gasen Property ancient mining activities followed along a
NNW-SSE striking trend within a band of greenschists for about 2.5 kilometers.
Traces of mining there have been found also over a vertical extent of 200
meters. The mining district was important for both gold as well as arsenopyrite
production. The polymetallic mineral association contains arsenopyrite, galena,
sphalerite, minor chalcopyrite and traces of rare complex Ag-sulfides.
Two types of mineralizations are described, a series of parallel
quartz-sulfide veins, more or less parallel along strike to the schistosity of
the greenschist host rock, but more steeply dipping, with a maximal thickness of
1.5 meters, with locally massive sulfides, and a horizon with massive sulfide
nodules in greenschists with thickness to 2.5 meters and mainly arsenopyrite.
An airborne geo-MAG survey of the area discovered a strong magnetic anomaly
down-dip from the outcropping greenschist series, seat of the historic gold mine
workings. The anomaly shows a certain NNW-SSE elongation with a maximum magnetic
susceptibility of 300 n Tesla. Computer calculations to model the anomaly are
presently being undertaken at the Institute for Geophysics at the University of
Vienna in an attempt to define the parameters of the anomaly more closely. The
Company's geologist believes that the anomaly is caused by a massive sulfidic
ore body located at an estimated depth of about 300 meters. Such a massive
sulfide ore body is believed to be the source for the numerous gold-sulfide
veins mined during historic times close to the surface.
Subject to favorable results of the present computer modeling attempts on
the anomaly, an initially limited exploratory core drill program is planned in
the future.
The Company's exploration activities are currently focused on the
Schellgaden North. Exploration programs will be developed for Strassegg-Gasen
based on the availability of capital and developments on the Schellgaden North
property.
The mining rights to all nine Austrian properties are held by currently
valid and maintained leases which expire, in part on December 31, 1997 and in
part on December 31, 1998.
Under Austrian federal law, the annual fee requirement for all exploration
claims and concessions is ATS 120.00 (approximately $9.55) for each claim, or
ATS 60,240.00 (approximately $4,795.10) for all 502 claims on the nine mining
properties. The bill is received by the concession holder for the properties
annually from the Highest Mining Authority seated at the Federal Ministry of
Economic Affairs in Vienna, Austria. An additional annual fee may be charged by
the provincial Mine Department Offices, which administers and grants exploration
and mining permits and approves exploration work programs. The provincial Mine
Department Offices can charge an annual renewal administrative fee of ATS 20.00
(approximately $1.59) per claim to cover administrative costs of concession
maintenance, registry and renewal. This fee amounts to ATS 720.00 (approximately
$57.31) in Salzburg, ATS 100.00 (approximately $7.96) in Innsbruck (East Tyrol),
and ATS 6,350.00 (approximately $505.46) in Klagenfurt (Carinthia). The
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Departments of Graz and Leoben have not charged any fees in the past two years.
There are no fee requirements to local administrations or to local land owners
on or under whose properties the explorations work is conducted. The only
payments to land owners that may take place are negotiated payments of
compensation for actual/possible losses from the exploration and mining
activities and the granting of access to and over the property. These fees tend
to be between ATS 3,000.00 (approximately $238.80) to ATS 10,000.00
(approximately $796.00).
To maintain exploration rights and concessions beyond the current term
under applicable Austrian law, the Company has to submit a work program with
detailed descriptions of the type, extent and purpose of the planned exploration
activities and schedule of work. Also, the Company must provide an estimate of
the cost of the program combined with evidence of the financial means to
complete the program. In addition, the Company must provide a description of
equipment required, transportation needed and the safety measures taken to
protect workers. Once a program is completed, or at the end of each year, the
Company must submit a work program report indicating the results of the program.
The exploration and mining rights held by the Company can be forfeited or
canceled by the Mining Authorities in the case of repeated breach of the
provisions and regulations of the mining law or repeated neglect of the
requirements stated by the Mining Authorities by the lease holder or their
authorized representative. The exploration and mining rights may also be
canceled by non-payment of the yearly claim fees. Under Austrian law, land
rights and mineral rights are equal and coexis for each others benefit. A land
owner may object to a work plan but cannot stop the plan as long as the program
is economically, legally and environmentally sound. The law encourages
negotiation and cooperation between land owners and holders of mineral rights.
Item 3. LEGAL PROCEEDINGS
The Company is party to one legal action related to the prior business of
the Company. On September 16, 1997, a lawsuit was filed in the State of New
York, Supreme Court, County of Livingston, case number 799-1997. The third party
plaintiff alleges that it purchased certain building systems, including building
design and building parts from the Company and that among other things, the
subject building was constructed in a defective and negligent manner and that
said defects and negligent construction caused a fire to spread unreasonably
fast and within concealed joint spaces of the subject building so that the fire
could not be confined or extinguished without substantial destruction to the
buildings. The lawsuit seeks unspecified damages.
The legal defense of the Company is being provided by the insurance carrier
for the Company. Management is in the process of determining the extent of any
insurance coverage for a loss or judgment. Should it be determined that any loss
or judgment is not covered by insurance such loss or judgment would be borne by
the Company. While the amounts claimed above or in respect of future claims
relating to the Company's former operations may be substantial, any liability
cannot now be determined because of the considerable uncertainties which exist.
Therefore, it is possible that the results of operations or liquidity in a
particular period could be materially affected by these contingencies. However,
based on facts currently available, management believes that the disposition of
matters that are pending or asserted will not have a materially adverse effect
on the financial position, results of operations and cash flow of the Company
The Company was a party to a legal action related to the prior business of
the Company. On March 2, 1995, a lawsuit was filed in the 98th District Court in
Travis County, State of Texas, alleging liability for the deaths of two people
and the destruction of a mobile home allegedly manufactured by the Company in a
fire. This lawsuit was settled in March 1998 at no cost to the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted during the fourth quarter of 1997 to a vote of
security holders.
18
<PAGE>
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Prior to December 7, 1994, the Company's common stock had been listed on
the New York Stock Exchange, the Chicago Stock Exchange and the Pacific Stock
Exchange. On December 4, 1994, these stock exchanges suspended trading in the
Company's common stock. The suspension was a result of the failure of the
Company to continue to meet the listing requirements with the New York Stock
Exchange. On May 24, 1995, the Company was delisted from the New York and
Chicago Stock Exchanges and, on April 11, 1996, the Company was delisted from
the Pacific Stock Exchange. The Company's common stock now trades
over-the-counter on the National Association of Securities Dealers Inc. OTC
Bulletin Board under the symbol "EGIT".
The following is the range of high and low bid information for the shares
of the common stock of the Company for each quarter in 1996 and 1997. This
information was obtained from the Trading and Market Services division of The
Nasdaq Stock Market, Inc. The information provided is over-the-counter market
quotations. The quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.
Quarter Ending High Bid Low Bid
-------------- -------- -------
March 31, 1996 0.07 0.03125
June 30, 1996 0.0313 0.001
September 30, 1996 0.04 0.001
December 31, 1996 0.08 0.02
March 31, 1997 0.25 0.05
June 30, 1997 0.15625 0.06
September 30, 1997 0.20 0.0625
December 31, 1997 0.15 0.04
As of May 31, 1998, the Company had approximately 6,000 shareholders of
record.
The Company has not paid any cash dividends on its common stock since 1973
and does not intend to pay any cash dividends in the foreseeable future.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
General
This Management Discussion and Analysis or Plan of Operation contains
certain forward looking statements as more fully described in the front of this
Report.
Since its inception in 1940, the Company incurred cumulative net losses of
$47,905,306. Of such amount, $601,342 represents losses from the Company's
current business of the evaluation, exploration and development of gold mining
prospects. The remainder of its accumulated losses relates to results of
operations of the Company's prior business from inception through December,
1996. The Company discontinued operations in 1996 of all prior businesses except
that of the evaluation, exploration and development of gold mining prospects.
Further, at December 31, 1997, the Company has negative working capital of
$162,035, representing the excess of current liabilities of $192,863 over
current assets of $30,370. The Company expects to continue to incur losses and
will be unable to generate sufficient working capital to sustain its operations
until it can produce and sell at a profit precious metals from its mining
properties. Until then, the timing and amounts of the Company's expenditures
will depend upon a number of factors, including the availability of working
capital, the status and timing of its explorations activities and the efforts
required to identify and evaluate potential mining properties. There can be no
assurance that the Company will be successful in its efforts to raise capital
sufficient to enable it to pursue its business plan.
19
<PAGE>
Mineral Properties and Deferred Development Costs
Mineral Property and Deferred Development Costs were $439,507 at December
31, 1997 compared to $200,192 at December 31, 1996. These costs capitalized and
reflected on the Company's Balance Sheet as "Mineral property and deferred
development costs". These cost relate to the Company's nine Austrian properties.
Cost incurred in 1997 for preparatory work for the drilling program on the
Company's Schellgaden property were $239,315. The capitalized cost of $200,192
at December 31, 1996 represent th acquisition cost of the nine Austrian
properties.
Results of Operations
General and Administrative Expenses for the years ended December 31, 1997
and 1996 were $78,362 and $10,285, respectively. The increase in 1997 compared
to 1996 result from the reactivation of the Company and the commencement of
business in the exploration and development of mineral properties. The increase
in costs in 1997 were the results of expenditures for transfer agent fees,
shareholder reporting costs and travel.
Legal fees for the years ended December 31, 1997 and 1996 were $91,652 and
Nil, respectively. The costs incurred in 1997 pertain to commencement of the
business of the evaluation, exploration and development of gold mining prospects
of the Company and complying with regulatory filing requirements.
Audit fees for the years ended December 31, 1997 and 1996 were $24,042 and
Nil, respectively. The increase is due to the additional company activity
associated with the 1996 restructuring..
Management fees for the years ended December 31, 1997 and 1996 were $71,822
and Nil, respectively. The increase in management fees is due to commencement of
the mineral exploration business of the Company. Commencing January 1, 1997 the
Company entered into an agreement with United Tri-Star Resources Ltd. , to
provide certain management and administrative services. Under the terms of the
agreement the fee is Cdn. $5,000 per month for January through April 1997 and
Cdn. $10,000 per month thereafter. The total fee was $71,822 (Cdn. $100,000) for
the year ended December 31, 1997.
Exploration expenditures - Canada represent the cost of investigation of a
potential acquisition in Canada. These expenditures were $262,207 for the year
ended December 31, 1997. Exploration expenditures - Ghana represent the cost of
investigation of potential acquisitions in Ghana. These expenditures were
$44,700 for the year ended December 31, 1997. No exploration expenditures of
this nature were incurred in the year ended December 31, 1996.
The net loss from continuing operations for the years ended December 31,
1997 and 1996 was $568,682 and $8,624, respectively. The increase in the loss
was due to the increase in operating expenses for the reasons noted above.
In the year ended December 31, 1996, the loss from the discontinued real
estate development operations was $32,660, primarily resulting from the sale of
development resort lots. Also, in the year ended December 31, 1996, the Company
disposed of its subsidiaries, NRC Inc., Arendswood Homes Inc., and National
Building Systems Inc., which were involved in the development of resort lots for
a net gain of $185,086. There was no gain or loss from discontinued operations
in 1997.
The Company's combined net loss from continuing and discontinued operations
for the year ended December 31, 1997, amounted to $568,682 compared to net
income of $143,802 in 1996.
20
<PAGE>
Liquidity and Capital Resources
In 1996, the Company discontinued its real estate development operations, a
change of control of the Company occurred and subsequently nine gold exploration
properties in Austria were acquired. The Company entered into its new business
plan after management determined to enter the mineral exploration business.
However, the Company does not have sufficient capital with which to pursue its
new business plan. The Company, therefore, continues to consider various capital
raising options, including, but not limited to, equity financing. There can be
no assurance that the Company will be successful in its efforts to raise capital
sufficient to enable it to pursue its new business plan
The Company has a net working capital deficit (current assets less current
liabilities) of $162,035 at December 31, 1997. The Company has $192,863 in
current liabilities of which $50,370 pertains to a prior year over accrual of
liabilities. Current assets amounted to $30,828 at December 31, 1997.
The Company used $373,924 in net cash for operating activities for the year
ended December 31, 1997, compared to $2,549 in 1996. The cash used in operations
for the year ended December 31, 1997 consisted of a net loss of $568,682 offset
by increases of $71,900 in accounts payable and accrued liabilities, $15,890 of
shareholder advances and $6,968 in accounts receivable, and offset by a decrease
of a security deposit of $100,000.
The Company used $239,315 and Nil in net cash for investing activities for
the year ended December 31, 1997 and 1996, respectively. Net cash used in
investing activities for the year ended December 31, 1997 was comprised of
$239,315 of deferred exploration costs incurred for the exploration of the
Company's nine Austrian properties.
The cash provided by net financing activities was $455,885 and $384,546 for
the year ended December 31, 1997 and 1996, respectively. During the year ended
December 31, 1997, the Company received $481,250 from the sale of common stock
offset by common stock issue costs of $25,265. During the year ended December
31, 1996, the Company received $579,130 from the sale of common stock offset by
common stock issue costs of $36,000. Also, in 1996, $158,584 due to the former
controlling shareholder was extinguished as a result of the transfer of the
Company's three wholly-owned subsidiaries, NRC Inc., Arendswood Homes Inc., and
National Building Systems Inc., and its remaining development resort lots to an
affiliate of that shareholder.
-THIS AREA INTENTIONALLY BLANK-
21
<PAGE>
Item 7. FINANCIAL STATEMENTS.
INDEPENDENT AUDITOR'S REPORT
To the Shareholders and Board of Directors
of Empire Gold Inc.
We have audited the consolidated financial statement of financial position of
Empire Gold Inc. and subsidiary as of December 31, 1997 and the related
consolidated statement of operations changes in stockholders' equity, and cash
flow for the year ended December 31, 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Empire Gold Inc. and
its subsidiary at December 31, 1997, and the results of their operations and
their cash flows for the year ended December 31, 1997, in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the company will continue as a going concern. As discussed in Note 1 (d) to
the financial statements, at December 31, 1997, the Company has an accumulated
deficit of $47,905,306 and a working capital deficiency of $162,035. In
addition, additional capital will be required to proceed with the Company's
exploration program. These matters raise substantial doubt about its ability to
continue as a going concern. Managemen plans in regard to these matters are also
described in Note 1(d). The financial statements do not include adjustments that
might result from the outcome of this uncertainty.
/s/ KPMG
Toronto, Canada KPMG
June 12, 1998 Chartered Accountants
22
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of National Enterprises, Inc.
(effective September 2, 1997 the Company changed its name to Empire Gold Inc.)
We have audited the accompanying consolidated balance sheet and the related
consolidated statement of operations, cash flow, and changes in shareholders'
deficit of National Enterprises, Inc. as of and for year ended December 31,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements audited by us present
fairly, in all material respects, the financial position of National
Enterprises, Inc. and its subsidiaries at December 31, 1996, and the results of
their operations and their cash flows for the year ended December 31, 1996, in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, on April 14, 1992, the Company was
reorganized under Chapter 11 of the U. S. Bankruptcy Code. Under the Plan of
Reorganization most of the operating assets have been sold or transferred to a
liquidating trust for the benefit of creditors. During 1996, the Company sold
its subsidiaries which held all of its remaining operating assets. It then
acquired a new subsidiary which owned certain mineral concessions. These
concessions are unproven and the Company's ability to establish ongoing
operations is dependent upon these rights being commercially developed and the
Company's ability to raise adequate capital to develop them. The consolidated
financial statements do not include adjustments that might result from the
outcome of this uncertainty.
/S/ James Smith & Company
Dallas, Texas JAMES SMITH & COMPANY
June 30, 1997 A Professional Corporation
23
<PAGE>
<TABLE>
<CAPTION>
EMPIRE GOLD, INC.
CONSOLIDATED BALANCE SHEET
as at December 31,
Note 1997 1996
---- ---- ----
<S> <C> <C> <C>
ASSETS
Current assets:
Cash ........................................ $ 12,796 $ 170,150
Accounts receivable ......................... 18,032 25,000
Security deposit ............................ 6 0 100,000
------------ ------------
30,828 295,150
Mineral properties and deferred exploration costs .. 439,507 200,192
------------ ------------
Total Assets ....................................... $ 470,335 $ 495,342
============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable ............................ $ 67,428 $ 37,703
Accrued liabilities ......................... 104,338 67,370
Due to related party ........................ 6 5,207 0
Shareholder advance ......................... 6 15,890 0
------------ ------------
192,863 105,073
Shareholders' Equity
Common stock ................................ 5 48,228,778 47,258,893
Common stock subscriptions, net ............. 5 0 514,000
Common stock transferred by Affiliate ....... 1 (46,000) (46,000)
Accumulated deficit ......................... (47,905,306) (47,336,624)
------------ ------------
Total Shareholders' Equity ......................... 277,472 390,269
------------ ------------
Total Liabilities and Shareholders' Equity ......... $ 470,335 $ 495,342
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
24
<PAGE>
<TABLE>
<CAPTION>
EMPIRE GOLD, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
For the Years Ended December 31,
Note 1997 1996
---- ---- ----
<S> <C> <C> <C>
Income
Interest income ........................... $ 4,103 $ 1,661
Expenses
General and administrative ................ 78,362 10,285
Legal ..................................... 91,652 0
Audit ..................................... 24,042 0
Management fees ........................... 6 71,822 0
Exploration expenditures - Canada ......... 262,207 0
Exploration expenditures - Ghana .......... 44,700 0
----------- ----------
572,785 10,285
----------- ----------
Loss from continuing operations .................. (568,682) (8,624)
Discontinued operations
Loss from operations ...................... 8 0 (32,660)
Gain on disposal .......................... 0 185,086
----------- ----------
Net income (loss) ................................ $ (568,682) $ 143,802
=========== ==========
Net income (loss) per common share ............... $ (0.01) $ *
=========== ==========
Weighted average number of common
shares outstanding ............................... 73,073,153 69,566,083
============ ==========
</TABLE>
* Less than $0.01 per share.
The accompanying notes are an integral part of these consolidated financial
statements.
25
<PAGE>
<TABLE>
<CAPTION>
EMPIRE GOLD, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Years Ended December 31,
Note 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) ............................................ $(568,682) $ 143,802
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities
Accounts receivable ................................... 6,968 (25,000)
Security deposit ...................................... 6 100,000 (100,000)
Accounts payable ...................................... 34,932 (31,351)
Accrued liabilities ................................... 36,968 10,000
Shareholders advance .................................. 6 15,890 0
--------- ---------
Net cash used by operating activities ........................ (373,924) (2,549)
--------- ---------
Cash flows from investing activities
Deferred exploration costs - Austria .................. (239,315) (200,192)
Decrease in assets of discontinued
operations ............................................ 0 (13,592)
--------- ---------
Net cash provided (used) by investing activities ............. (239,315) (213,784)
--------- ---------
Cash flows from financing activities
Proceeds from sale of common stock .................... 5 455,985 29,130
Proceeds from sale of common stock subscriptions ...... 0 514,000
Related party borrowings extinguished ................. 6 0 (158,584)
Cancellation of shares ................................ (100) 0
--------- ---------
Net cash provided by financing activities .................... 455,885 384,546
--------- ---------
Net increase (decrease) in cash .............................. (157,354) 168,213
Cash at beginning of year .................................... 170,150 1,937
--------- ---------
Cash at end of year .......................................... $ 12,796 $ 170,150
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
26
<PAGE>
<TABLE>
<CAPTION>
EMPIRE GOLD, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Common
Number of Common Stock
Common Common Stock Transferred by Accumulated
Shares Stock Subscriptions Affiliate Deficit Total
--------- ------ ------------- -------------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
January 1, 1996 .............. 69,034,997 $ 47,183,763 $ 0 $ 0 $(47,480,426) $ (296,663)
Sale of common
stock subscriptions .......... 0 0 514,000 0 0 514,000
Exercise of stock
options ...................... 971,000 29,130 0 0 0 29,130
Transfer of common
stock by Affiliate ........... 0 46,000 0 (46,000) 0 0
1996 net income .............. 0 0 0 0 $ 143,802 143,802
------------ ------------ ------------ ------------ ------------ ------------
December 31, 1996 ............ 70,005,997 $ 47,258,893 $ 514,000 $ (46,000) $(47,336,624) $ 390,269
Common stock issued .......... 4,125,000 969,985 (514,000) 0 0 455,985
Cancellation of
common stock ................. (2,000) (100) 0 0 0 (100)
1997 net loss ................ 0 0 0 0 (568,682) (568,682)
------------ ------------ ------------ ------------ ------------ ------------
December 31, 1997 ............ 74,128,997 $ 48,228,778 $ 0 $ (46,000) $(47,905,306) $ 277,472
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
27
<PAGE>
Empire Gold, Inc.
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
NOTE 1 - BASIS OF PRESENTATION AND ACQUISITION:
(a) General
In September 1997, the Company changed its name to Empire Gold Inc. (the
"Company") from National Enterprises Inc.
In December 1996, as part of a series of transactions which resulted in a
change in control of the Company, the Company sold the subsidiaries holding
the remaining inventory of resort development lots and acquired all the
issued and outstanding stock of an Austrian company. In connection with
this acquisition, the Company acquired 100% of the ownership interests in
nine gold exploration properties located in Austria. As a result of these
transactions, the business of the Company changed from the sale of resort
home sites and panelized public housing to the evaluation and exploration
of gold mining prospects located in Austria.
(b) Basis of Presentation
These financial statements have been prepared on the going concern basis,
which assumes realization of assets and payment of liabilities in the
normal course of business. There is substantial doubt about the Company's
ability to realize the carrying value of its mining properties and its
ability to pay liabilities as they become due. At December 31, 1997, the
Company has an accumulated deficit of $47,905,306 and a working capital
deficiency of $162,035. The Company incurred a loss from continuing
operations of $568,682 in 1997 and $8,624 in 1996. Furthermore, additional
funds will be required to proceed with the Company's exploration program.
The Company is considering various capital raising options, including but
not limited to, equity financing. There can be no assurance that the
Company will be successful in its efforts to raise capital sufficient to
enable it to pursue its business plan. The financial statements do not
include any adjustments that might result from th outcome of this
uncertainty.
(c) Acquisition of Argosy Mining G.m.b.H.
On December 17, 1996, the Company acquired all the issued and outstanding
stock of Argosy Mining G.m.b.H., an Austrian corporation (Argosy G.m.b.H.),
from Argosy Mining Corp., a Canadian corporation (Argosy Mining), which
owns mineral rights to explore for gold reserves in nine prospects located
in Austria. The consideration for the transaction included the payment by
the Company of $200,192 in cash and the transfer to Argosy Mining from
Mercury Immobilien und Verwaltungs AG (Mercury), the controlling
shareholder of the Company of 2,300,000 shares of common stock in the
Company, valued at $.02 per share, representing the bid price in December,
1996, for an aggregate amount of $46,000. The transfer of shares by Mercury
to Argosy Mining has been accounted for in the accompanying consolidated
balance sheets as an increase in common stock in the amount of $46,000 with
a corresponding deduction to shareholders' deficit in the amount of $46,000
and separately disclosed as "common stock transferred by affiliate". The
acquisition was accounted for under the purchase method of accounting.
Accordingly, the purchase price was allocated to the assets acquired and
liabilities assumed based on their fair values at the respective date of
acquisition. The results of operations since December 17, 1996, are
included in the accompanying consolidated financial statements.
The following summarized pro forma information assumes the acquisition had
occurred on January 1, 1996:
1996
----
Interest Income $ 5,661
=======
Loss from continuing operations $(65,624)
=======
Net income $ 81,802
=======
28
<PAGE>
(d) Discontinued Operations
In the year ended December 31, 1996, the sale of the Company's
subsidiaries, which held the remaining inventory of resort development
lots, has been reported as discontinued operations in the accompanying
financial statements.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany transactions and
accounts are eliminated in consolidation.
(b) Mineral Properties and Deferred Costs
Costs relating to the acquisition, exploration and development of
non-producing mining properties held by the Company are capitalized until
such time as either economically recoverable reserves are established, or
the properties are sold or abandoned. Proceeds from sale of properties and
earn-in arrangements in which the Company has retained an economic interest
are credited against property costs and no gain is recognized until all
costs have been fully recovered.
Amounts recorded for mineral properties and deferred costs represent costs
incurred to-date relating to its gold mining prospects located in Austria
and are not intended to reflect present or future values. The
recoverability of amounts shown for mineral properties and related deferred
costs is dependent upon the discovery of economically recoverable reserves,
confirmation of the Company's interest in the underlying mineral claims,
the ability of the Company to obtain necessary financing to complete the
development, and future profitable production or proceeds from the
disposition thereof.
(c) Translation of Foreign Currencies
The net assets of the foreign operations of the Company is translated at
the appropriate period-end exchange rates. Income and expense accounts are
translated at average monthly exchange rates. Net exchange gains or losses
resulting from such translation are excluded from results of operations and
accumulated as a separate component of stockholders' equity. Gains and
losses from foreign currency transactions are included in other income
(expense).
(d) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
(e) Cash Flows
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with maturities of three months or less to be
cash equivalents.
(f) Loss Per Share
Earnings (loss) per common share (EPS) is computed based on the provisions
of Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings
Per Share." Basic EPS is computed by dividing income available to commons
shareholders by the weighted-average number of common shares outstanding
during the period. Diluted EPS reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised
or converted into common shares. The adoption of SFAS No. 128 in 1997 did
not result in the restatement of the loss per share reported in 1996.
29
<PAGE>
NOTE 3 - INCOME TAXES
The tax effects of the temporary differences that give rise to significant
portions of the deferred tax assets at December 31, 1997 and 1996 are as
follows:
1997 1996
Deferred Tax Assets:
Net operating loss carry forwards $ 202,057 $ 3,018
Valuation allowance (202,057) (3,018)
------- -------
Net deferred tax assets $ -- $ --
======= =======
At December 31, 1997 the Company has net operating loss carry forwards for
income tax purposes of approximately $577,486 which begin to expire in 2004.
The potential future tax assets have not been recognized because the Company
does not believe it is more likely than not that the benefit will be realized in
the future.
NOTE 4 - STOCK OPTION PLAN
On September 2, 1997, the Company adopted a non-qualified stock option plan.
Under the terms of the plan, the Company's Board of Directors is authorized to
grant options to purchase up to 7,500,000 of common stock to key employees of
the Company, including officers and directors. 7,500,000 shares of common stock
have been reserved for issuance pursuant to the exercise of options to be
granted under the plan. No options have been granted under this plan.
On November 29, 1996 certain officers, directors and former employees of the
Company exercised 475,000 options to purchase 971,000 shares of common stock
granted under a non-qualified stock option plan adopted in 1995. The remaining
504,000 stock options outstanding under this plan were canceled on that date.
NOTE 5 - COMMON SHARES
(a) were amended in 1997 resulting in the elimination of the previously
authorized preferred shares.
(b) The subscriptions were accepted by the Board of Directors in 1997. The
Company incurred common share issue costs of $36,000, for a finders fee, in
connection with the subscription resulting in net proceeds from the
offering of $514,000.
(c) of one share of common stock of the Company and one warrant to purchase one
share of common stock of the Company. The Company incurred common share
issue costs of $25,265, for a finders fee, in connection with the
subscription resulting in net proceeds of the offering of $455,985. Each
warrant may be exercised for $0.25 per share at any time prior to March 31,
1998 and for $0.30 per share at any time thereafter, but prior to September
30, 1998. At December 31, 1997, 1,925,000 share purchase warrants were
outstanding.
NOTE 6 - RELATED PARTY TRANSACTIONS
In 1996, the Company transferred the ownership of its wholly-owned subsidiaries;
NRC Inc., Arendswood Homes Inc., and National Building Systems Inc. to Danca
Investments, Inc., an affiliate of the former controlling shareholder, as
payment in full of all debts outstanding to the shareholder, and its affiliates.
30
<PAGE>
In December 1996, the controlling shareholder entered into a Put/Escrow
Agreement with a number of shareholders of the Company. In September 1997, those
shareholders agreed to terminate the Put/Escrow Agreement and a security deposit
of $100,000 plus interest of $3,968 was returned to the Company.
In 1996, the Company paid a management fee of $12,000 to an affiliate of the
controlling shareholder.
Commencing January 1, 1997, the Company entered into an agreement with a company
of which two directors of the Company are senior officers, to provide certain
management and administrative services. Under the terms of the agreement the fee
amounted to $71,822 (Cdn. $100,000) in 1997. At December 31, 1997, $5,207 (1996
- - Nil) was due to this company.
In September 1997, a shareholder who is also a director of the Company advanced
$15,890 to the Company which remains outstanding at year end. This advance does
not bear interest and has no fixed terms of repayment.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
The Company is a defendant in a lawsuit filed in 1997 seeking unspecified
damages related to the destruction of a modular building in a fire. The
plaintiff alleged that components of the modular building were manufactured by a
division of the Company in 1990. The Company is represented by counsel retained
by its professional liability insurance carrier. This lawsuit is in the
discovery phase. While the amounts claimed above or in respect of future claims
relating to the Company's former operations may be substantial, any liability
cannot now be determined because of the considerable uncertainties which exist.
Therefore, it is possible that the results of operations or liquidity in a
particular period could be materially affected by these contingencies. However,
based on facts currently available, management believes that the disposition of
matters that are pending or asserted will not have a materially adverse effect
on the financial position, results of operations and cash flow of the Company.
NOTE 8 - DISCONTINUED OPERATIONS
On December 11, 1996, the Company transferred the ownership of its wholly owned
subsidiaries; NRC, Inc., Arendswood Homes, Inc. and National Building Systems,
Inc. (the former subsidiaries); to Danca Investments, Inc., an affiliate of
Arendscor as payment in full for all debts outstanding to Arendscor and its
affiliates. The transfer of the former subsidiaries constitutes a disposal of
substantially all of the Company's real estate development operations. The
operating results of the former subsidiarie have been segregated as discontinued
in the accompanying consolidated statements. The loss from discontinued
operations for the year ended December 31, 1996, consists of the following:
1996
----
Land sales $ 492,320
Less: Cost of Sales (457,528)
--------
34,792
General and administrative (including management
fees of $12,000) 67,452
--------
Loss from discontinued operations $ (32,660)
========
31
<PAGE>
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT.
Directors and Executive Officers of the Company.
Listed below are the names, ages (as of May 31, 1998) of each of the
directors and executive officers of the Company:
<TABLE>
<CAPTION>
Positions Held Directorship or Office
Name Age With the Company Held Since
- ---- --- ---------------- ----------------------
<S> <C> <C> <C>
Florian Riedl-Riedenstein 56 Director, Chairman, 1996
President and Chief
Executive Officer
Campbell Deacon 50 Director 1994
Edward Jan Smith 50 Director 1996
C.W. Leigh Cassidy, C.A. 42 Director, Vice President, 1996
Chief Financial Officer
and Secretary
Matthew Gaasenbeek, III 68 Director 1993
Robert Needham 69 Director 1997
William Warke 72 Director 1997
Dr. Hans R. Klob 50 Vice President, Exploration 1997
</TABLE>
No arrangement or understanding exists between any director or executive
officer and any other person under which any director or executive officer was
elected. All of the above officers and directors have been elected for a term of
one year or until a successor is elected. Directors are subject to election
annually by the shareholders. Directors are elected by a simple plurality of the
vote of the shareholders. There are no family relationships by blood, marriage
or adoption among any of the officers or significant employees of the Company.
Florian Riedl-Riedenstein. Mr. Riedl-Riedenstein has been a director and
Chairman of the Company since December, 1996 and has been President and Chief
Executive Officer of the Company since July, 1997. Mr. Riedl-Riedenstein is Vice
Chairman and a Director of Tri Star Gold Corp. (1996), a Director of Coral Gold
Corp. (1994), a Director of Bralorne Pioneer Gold Corp. (1994) and a Director of
Levon Resources Ltd. (1996). He is formerly Chairman and Chief Executive Officer
of Strand Resources (199 1996) and Managing Director of Investment Department of
Schoeller & Co., Bank AG (1969-1990).
D. Campbell Deacon. Mr. Campbell has been a director of the Company since
1994 and served as President and Chief Executive Officer of the Company from
1994 until July, 1997. He has been the President and Chief Executive Officer of
United Tri-Star Resources Corporation since 1994 and was the Chairman and Chief
Executive Officer of the investment banking firm of Deacon, Barclays, de Zoete
Wedd from 1986 to 1994.
32
<PAGE>
C.W. Leigh Cassidy, C.A. Mr. Cassidy has been the Vice President, Chief
Financial Officer and Secretary of the Company since December, 1996. Since 1996,
Mr. Cassidy has been Vice President, CFO of United Tri-Star Resources Ltd.,
International Reef Resources Ltd., Tri-Star Gold Corp. Previously, he was Vice
President, CFO of Emtech Ltd. (1993-1995), Vice President, CFO, Taramira Inc.
(1992-1993), Group Vice President, CFO, Household Financial Corporation
(1987-1992).
Edward Jan Smith. Mr. Smith has been a director of the Company since 1996.
From 1993 to 1996, he was the Secretary, Vice President, Finance and Chief
Financial Officer of the Company. Since 1997 he has been Vice President, Finance
of Lambert Fenchurch US Holdings, an insurance service firm. He was Vice
President and Chief Financial Officer of MacLean Oddy & Associates, a wholesale
insurance brokerage firm from 1996 to 1997. He was a principal in Smith, Sibley
& Co., from 1991 to 1993 and was with Price Waterhouse from 1980 to 1991. In
1994, the Securities and Exchange Commission announced the settlement of a Rule
2(e) administrative proceeding brought against Mr. Smith and one other person in
connection with audits performed in 1987 and 1988 of another company when Mr.
Smith was a partner in Price Waterhouse. The settlement was reached to end an
investigation that had been in progress for five years. Under the terms of the
settlement, Mr. Smith did not admit or deny the charges and was barred from
practicing before the Commission as an auditor for a period of nine months. The
terms of the settlement does not limit or restrict, in any way, Mr. Smith's
acting as a director of the Company.
Matthew Gaasenbeek III. Mr. Gaasenbeek has been a director of the Company
since 1993. Since 1983 he has been a Managing Partner of Northern Crown Capital
Inc. and is a past director of Royal Oak Mines. Previously, Mr. Gaasenbeek was
President of Camreco Inc. (1983-1991). Mr. Gaasenbeek is also currently a
director of several non-profit environmental organizations and Chairman of the
Ontario Development Corporation.
Robert Needham. Mr. Needham is the founding Chairman and Chief Executive
Office of Tri-Star Gold Corp. and Tri-Star Gold (Ghana) Ltd.. A Chartered
Engineer and Member of the Order of Australia, Mr. Needham, has over 30 years
international exploration and mining experience. Prior to founding the Tri-Star
companies Mr. Needham was Managing Director & CEO of the state owned Mineral
Resource Development Company, Papa New Guinea, 1991-1994. Other senior positions
in the international mining industr fulfilled by Mr. Needham include: Chairman &
CEO, Giant Yellowknife Mines Inc., Pamour Inc. and Pamorex Inc., 1987-1990;
founding Managing Director & CEO, Kidston Gold Mines Ltd., 1982-1987; Founding
Managing Director & CEO, Placer Pacific Limited, 1980-1987; founding Chairman,
Porgera Joint Venture Committee, 1979-1987; and Managing Director & CEO &
Founder, Fox Mexicana SA, 1970-1980.
William Warke. Mr. Warke is primarily involve in the investigation of the
Tulameen Project on behalf of the Company. He was President of Tiffany Resources
Inc. from 1984 to 1997 a company listed on the Vancouver Stock Exchange involved
in the business of exploration. Previously, Mr. Warke was President of Rampart
Resources Ltd., from 1985 to 1986, a company listed on the Vancouver Exchange
involved in the business of minerals exploration, and was President of Cima
Resources Inc., from 1975 t 1980, a company listed on the Vancouver Exchange
which brought into operation two copper mines in Chile and a lead, zinc and
silver mine in Canada's Yukon territory.
Dr. Hans R. Klob. Dr. Klob has been Vice President, Exploration of the
Company since 1997. He is a professional geologist and economist with over 26
years experience in exploration, mining, project management and planning. Dr.
Klob has acted as a consulting geologist on many projects. From 1978 to 1984 he
held various management positions with Austrian OMV and SOHIO Petroleum. Since
1984, he has conducted consulting services for clients through HRK International
of San Francisco. During his career, he has served many small and large
organizations in the mining industry, such as Bechtel Engineering, Fluor Daniel,
Placer Dome US, St. Joe Gold-Dallhold Resources, Doyon Limited, Amoco
Production. He also has served as a consultant to foreign governments such as
Turkey, Rwanda and Nicaragua.
33
<PAGE>
Since 1995, Dr. Klob was General Manager of Argosy Mining's Austrian
subsidiary, which was purchased by the Company in December, 1996. Dr. Klob,
through HRK International, is currently a consultant to the Company. Based on
his advice, the Schellgaden North property will be the main target of the
Company's 1998 diamond core drill program in Austria to further define the
indicated resource.
Item 10. EXECUTIVE COMPENSATION.
For the years 1995, 1996 and 1997, no compensation was awarded to, earned
by, or paid to the Chief Executive Officer of the Company and no executive
officer of the Company received a total annual salary and bonus in excess of
$100,000.
The Company has entered into a management and administrative services
agreement with United Tri-Star Resources Ltd., see Item 12 Certain Relationships
and Related Transactions.
Directors receive no cash compensation for their services. The Company
reimburses Directors for out-of-pocket expenses incurred to attend Directors
meetings.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Security ownership of all beneficial owners of more than 5% of the
outstanding common stock of the Company as of May 31, 1998 and management.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership (1) Class
- ------------------- ----------------------- ----------
<S> <C> <C>
Florian Riedl-Riedenstein 14,060,500 18.97%
A-3034 Maria-Anzbach
Tannhof - 1 Austria
D. Campbell Deacon 2,000,000 2.70%
300, 90 Adelaide Street West
Toronto, Ontario M5H 3V9
W. Leigh Cassidy, C.A 1,000,000 1.35%
300, 90 Adelaide Street West
Toronto, Ontario M5H 3V9
Matthew Gaasenbeek, III 855,000 (2) 1.15%
810-8 King St. E.
Toronto, Ontario M5C 1B5
Edward Jan Smith 610,000 0.82%
110-14755 Preston Rd.
Dallas, Texas 75240
Robert Needham 6,750,000 9.11%
House No. 2
F57/8 Abafum Cresent
Labone North, Accra, Ghana
William Warke Nil Nil
802-1985 Belleville Ave.
West Vancouver, British Columbia
Hans R. Klob 1,000,000 1.35%
Freyung 6/7
A-!010, Venna, Austria
Directors and
Executive Officers as a Group 26,275,500 35.45%
(six persons)
</TABLE>
34
<PAGE>
(1) Calculated pursuant to Rule 13d-3(d) of the securities Exchange Act of
1934. Unless otherwise stated below, each such person has sole voting and
investment power with respect to all such shares. Under rule 13d-3(d),
shares not outstanding which are subject to options, warrants, rights or
conversion privileges exercisable within 60 days are deemed outstanding for
the purpose of calculating the number and percentage owned by such person,
but are note deemed outstanding for the purpose calculating the percentage
owned by each other person listed.
(2) Includes 480,000 shares owned by Hilda Gassenbeek the spouse of Matthew
Gaasenbeek, III.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company entered into a verbal agreement with William B. Warke a
director of the Company in the second quarter of 1997 to organize and effect for
the benefit of the Company the staking and the acquisition of mineral claims in
the Tulameen project area. At the same time the evaluation of the Tulameen
project continued under the direction of Dr. Hans R. Klob. See "ITEM 1.
DESCRIPTION OF BUSINESS - NEW BUSINESS PLAN". Mr. Warke also owns several claim
blocks within the outlined Tulameen project area which are intended to be
transferred into the Company.
It was the Company's intent to acquire all such properties directly through
its Canadian subsidiary, Lodestone Mountain Mining Inc. ("Lodestone"). At the
start of staking and acquisition by Mr. Warke in July 1997 "Lodestone" was not
yet formed, nor was the Company in the possession of a Free Miners Certificate.
Such a Certificate is needed by law to acquire and hold claims for mining
properties under Mineral Tenure Act RSBC, c292. For these reasons, the Company
entered in the verbal agreement with Mr. Warke.
The Company completed the formation of Lodestone in March 1998 and is now
in the process of obtaining for it the Free Miners Certificate. In the meantime
Mr. Warke, a long-time holder of a valid Free Miners Certificate, is holding the
complete block of mineral claims acquired and staked for the Company, including
properties held in Mr. Warke's personal possession. It is the intent that when
Lodestone is in the possession of a Free Miners Certificate that the said block
of mineral claims acquired, staked and in private holding by Mr. Warke be vended
into Lodestone.
As of December 31, 1997, the Company had advanced $262,207 to Mr. Warke for
the purpose of staking and purchasing additional mining claims other than the
ones held by him personally, and for expenditures incurred by Mr. Warke in
connection therewith for the benefit of the Company. The Company has advanced an
additional $27,503 to Mr. Warke to May 31, 1998 for the same purposes. These
advances to Mr. Warke have been accounted for as operating expenses in the
period they were made.
The Company anticipates that the total acquisition cost for the block of
mineral claims in the Tulameen project area at the time of transfer to Lodestone
by Mr. Warke will be approximately $500,000 in cash, which includes the $289,710
previously advanced to Mr. Warke, and the issuance of approximately 20,000,000
shares of the Company's Common Stock. The anticipated purchase price is based
upon individual purchase agreements with the former owners of mineral claims,
and discussions between the Company and Mr. Warke. The Company has itself
extensively evaluated the mineral potential of the land outlined for acquisition
in the Tulameen project area, a hundred-year old well known mining district for
gold, platinum and copper, and does not expect to obtain an independent
valuation of the property acquired from Mr. Warke. While the verbal agreement is
not definitive at this time, the Company expects that the anticipated total
purchase price will include (i) the acquisition from Mr. Warke of both the
properties previously owned by him and those acquired for the benefit of the
Company, (ii) the acquisition from Mr. Warke of the Portable Assessment Account
("PAC Account") credit held by Mr. Warke arising from his previous expenditures
on personally held properties in the area in excess of expenditures required for
the maintenance of mineral claims by the Ministry of Energy and Mines for the
Province of British Columbia, and (iii) compensation for Mr. Warke for his
services to plan and manage the acquisition and staking of the said mineral
claims in the Tulameen project area for the benefit of the Company.
35
<PAGE>
The Company intends to finalize the formal transfer of ownership of the
whole block of the acquired, staked or other properties held by Mr. Warke
personally in the Tulameen project area. This transfer will take place after
receipt of the Free Miners Certificate and final approval of the purchase by the
Board of Directors of the Company.
Commencing January 1, 1997, the Company entered into an agreement with
United Tri-Star Resources Ltd., a company of which two directors D. Campbell
Deacon and C. W. Leigh Cassidy are senior officers, to provide certain
management and administrative services. Under the terms of the agreement the
Company is required to pay United Tri-Star Resources Ltd. a fee of Cdn. $5,000
per month for January through April 1997 and Cdn. $10,000 per month thereafter.
The agreement may be terminated by either party in any year by giving a least
three months written notice. The total fee through December 31, 1997 was $71,822
(Cdn. $100,000).
In 1996, the Company transferred the ownership of three of its wholly owned
subsidiaries, NRC, Inc., Arendswood Homes, Inc., and National Building Systems,
Inc., to Danca Investments, Inc., an affiliate of Arendscor (Canada), Inc., as
payment in full of all debts outstanding to Arendscor (Canada), Inc., and its
affiliates.
On December 12, 1996, Mercury entered into Put/Escrow Agreements with a
number of shareholders of the Company. The agreements provide that certain
shareholders may require Mercury to purchase additional shares of common stock
from them at $0.10 per share during a period from September 12, 1997 to
September 27, 1997. The put option expires if the shares covered have been
registered by the Company with the Securities and Exchange commission for resale
in the United States and have been freely tradable at a price above $0.10 for
more than ten consecutive days after registration and prior to receipt by the
Company of a notice of exercise. As part of the agreement, the Company deposited
cash of $100,000 in escrow equal to one-half the option price, and Mercury
deposited 1,000,000 shares of the common stock of the Company held by Mercury to
secure the Put/Escrow Agreement. The Put/Escrow Agreements covered a total of
2,000,000 shares of the Company, including 1,223,200 shares held by Arendscor
(Canada) Inc., 88,000 shares held by Edward Jan Smith (a director of the
Company), 100,000 shares held by Matthew Gaasenbeek, III (a director of the
Company), 8,800 shares held by Lisa Hoekwater, 240,000 shares held by John B.
Overzet (a former director of the Company), 100,000 shares held by Arthur Walker
(a former director of the Company), and 240,000 shares held by Jack Wrobel (a
former director of the Company).
By agreement, dated December 6, 1996, Erzbergbau Radhausberg G.m.b.H.,
("Erzbergbau"), the seller of the mining properties to Argosy Mining, agreed to
the sale and transfer of the properties from Argosy Mining to the Company and
the Company agreed to assume the obligations relating to the properties in the
agreement between Erzbergbau and Argosy Mining. By agreement, dated December 6,
1996, Erzbergbau agreed to the full settlement of the amount due from Argosy for
the properties of $1,000,000 by the transfer of 300,000 shares of common stock
of the Company to Erzbergbau from Mercury and Erzbergbau released the Company
from any further obligations set forth in the agreement between Erzbergbau and
Argosy Mining and in the agreement referred to above.
By agreement, dated November 30, 1996, which closed on December 17, 1996,
the Company acquired all the issued and outstanding stock of Argosy from Argosy
Mining, an unaffiliated entity. Argosy holds interests in nine gold mining
prospects in Austria. The consideration for the purchase was C$ 250,000 paid by
the Company and 1,000,000 shares of common stock of the Company held by Mercury.
The agreement provided that an additional 1,000,000 shares of common stock will
be transferred to Argosy Mining by Mercury if the Company does not register the
original 1,000,000 shares of common stock with the Securities and Exchange
Commission for resale within three months following the closing date. Mercury
deposited 1,000,000 shares of common stock of the Company in escrow for this
purpose and the shares were transferred to Argosy Mining Corp. pursuant to the
terms of the escrow.
36
<PAGE>
On November 28, 1996, the Company transferred to Danca Investments Inc., an
affiliate of Arendscor (Canada) Inc., the then controlling shareholder of the
Company, all of the interest of the Company in its three wholly owned
subsidiaries, NRC Inc., Arendswood Homes Inc. and National Building Systems Inc.
This transaction divested the Company of its three wholly-owned subsidiaries and
certain of its remaining development resort lots. The consideration for the
transfer was the assumption by Danca Investments Inc. of $142,874 in obligations
owed by the Company to Arendscor (Canada) Inc. No independent valuation of the
assets transferred by the Company to Danca Investments Inc. was received.
However, the transaction was approved by the shareholders of the Company at the
1995 Annual Meeting of the Shareholders.
By agreement, dated November 27, 1996, which closed on December 17, 1996,
Mercury purchased 54,367,551 shares of common stock of the Company from
Arendscor (Canada) Inc. representing 77.2% of the outstanding common shares of
the Company, and became the controlling shareholder of the Company. The
consideration for the purchase was $10,000. The completion of the stock purchase
was conditioned, among other things, on the simultaneous closing of the purchase
of Argosy by the Company.
By agreement, dated September 3, 1996, the Company sold 200,000 shares of
common stock at $0.25 per share to Florian Riedl-Riedenstein and 200,000 shares
of common stock at $0.25 to a private investor. The subscriptions were accepted
and the shares issued by the Company in January, 1997. The $100,000 raised was
used by the Company in partial payment of the costs and expenses incurred in the
preparation and closing by the Company of the divestiture of the assets of the
Company, purchase of all the shares of Argosy and the change in control of the
Company. Mr. Riedl-Riedenstein has since become the Chairman, President and
Chief Executive Officer of the Company.
Item 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
The following is a list of exhibits filed as part of this Form 10-KSB.
Where so indicated by footnote, exhibits which were previously filed are
incorporated by reference. For exhibits incorporated by reference, the location
of the exhibits in the previously filed is indicated in parenthesis.
Item 601
Category Exhibit
- -------- -------
3.1 Amended and Restated Articles of Empire Gold Inc., adopted September 2,
1997. (2) (Exhibit 1)
3.2 Amended and Restated Bylaws of Empire Gold Inc., adopted August 6, 1997.
(2) (Exhibit 2)
3.3 Articles of Amendment of Articles of Incorporation of Registrant (1)
(Exhibit 3.1)
3.4 Amended By-Laws of National Enterprises, Inc., adopted February 11, 1972 as
amended to March 15, 1993. (3) (Exhibit 1)
10.1 Share Purchase Agreement, dated November 28, 1996, among National
Enterprises Inc. and Danca Investments Inc., pertaining to the sale of all
of the issued and outstanding shares of NRC, Inc. Filed as Exhibit 1.I to
Form 8-K filed March 27, 1997 and incorporated herein by reference. (3)
(Exhibit 2)
10.2 Share Purchase Agreement, dated November 28, 1996, among National
Enterprises Inc. and Danca Investments Inc., pertaining to the sale of all
of the issued and outstanding shares of National Building Systems, Inc.
Filed as Exhibit 1.II to Form 8-K filed March 27, 1997 and incorporated
herein by reference. (3) (Exhibit 3)
10.3 Share Purchase Agreement, dated November 28, 1996, among National
Enterprises Inc. and Danca Investments Inc. pertaining, to the sale of all
of the issued and outstanding shares of Arendswood Homes, Inc. Filed as
Exhibit 1.III to Form 8-K filed March 27, 1997 and incorporated herein by
reference. (3) (Exhibit 4)
37
<PAGE>
10.4 Agreement, dated November 30, 1997, among National Enterprises, Inc.,
Argosy Mining Corp. and Mercury Immobilien und Verwaltungs AG, pertaining
to the acquisition of Argosy Mining G.m.b.H. Filed as Exhibit 2.IV to Form
8-K filed March 27, 1997 and incorporated herein by reference. (3) (Exhibit
5)
10.5 National Enterprises, Inc. 1994 Stock Option Plan. (3) (Exhibit 6)
10.6 Management Agreement between National Enterprises Inc. and United Tri-Star
Resources Limited, dated September 30, 1997. (2) (Exhibit 3)
21* List of subsidiaries of Empire Gold Inc.
27* Financial Data Schedule.
*Filed herewith.
(1) File as an Exhibit to Form 10-KSB of National Enterprises Inc. filed
March 20, 1997 for the year ended December 31, 1995.
(2) Filed as an Exhibit to Form 10-QSB of National Enterprises Inc. filed
November 13, 1997, for the quarter ended September 30, 1997.
(3) Filed as an Exhibit to Form 10-KSB of National Enterprises Inc. filed
July 21, 1997, for the year ended December 31, 1996.
(b) Reports on Form 8-K
During the last quarter of the year ended December 31, 1997, the Company
filed one Current Report on Form 8-K, dated October 24, 1997, reporting the sale
of equity securities pursuant to Regulation S.
38
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
EMPIRE GOLD INC.
By: /s/ Florian Riedl-Riedenstein Date: June 29, 1998
------------------------------
Florian Riedl-Riedenstein, Chairman, President,
Chief Executive Officer (Principal
Executive Officer), and Director
In accordance with the Exchange Act, this Report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
By: /s/ Florian Riedl-Riedenstein Date: June 29, 1998
------------------------------
Florian Riedl-Riedenstein, Chairman, President,
Chief Executive Officer (Principal
Executive Officer), and Director
By: /s/ C. W. Leigh Cassidy Date: June 29, 1998
-----------------------
C. W. Leigh Cassidy, Vice President,
Director, Chief Financial Officer (Principal
Financial and Accounting Officer)
and Secretary
By: /s/ D. Campbell Deacon Date: June 29, 1998
----------------------
D. Campbell Deacon, Director
By: /s/ Edward Jan Smith Date: June 29, 1998
--------------------
Edward Jan Smith, Director
By: /s/ Matthew Gassenbeek, III Date: June 29, 1998
---------------------------
Matthew Gaasenbeek, III, Director
By: /s/ Robert Needham Date: June 29, 1998
------------------
Robert Needham, Director
By: /s/ William Warke Date: June 29, 1998
-----------------
William Warke, Director
By: /s/ Hans R. Klob Date: June 29, 1998
----------------
Hans R, Klob, III, Vice President, Exploration
39
List of Subsidiaries of Empire Gold Inc.
1. Argosy Mining G.m.b.H., (Austria), 100% of the interest in which are
held by Empire Gold Inc.
2. Lodestone Mountain Mining Inc., (Canada), 100% of the interests in which
are held by Empire Gold Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Empire Gold
Inc.'s Consolidated Balance Sheets at December 31, 1997 and Consolidated
Statements of Operations and Deficit for the year ended December 31, 1997, and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 12,796
<SECURITIES> 0
<RECEIVABLES> 18,032
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 30,828
<PP&E> 439,507
<DEPRECIATION> 0
<TOTAL-ASSETS> 470,335
<CURRENT-LIABILITIES> 192,863
<BONDS> 0
0
0
<COMMON> 48,228,778
<OTHER-SE> (47,951,306)
<TOTAL-LIABILITY-AND-EQUITY> 470,335
<SALES> 0
<TOTAL-REVENUES> 4,103
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 572,785
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (568,682)
<INCOME-TAX> 0
<INCOME-CONTINUING> (568,682)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (568,682)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> 0.00
</TABLE>
