<PAGE> 1
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------ ------------
Commission File Number 0-12761
BRUSH CREEK MINING AND DEVELOPMENT CO., INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
NEVADA 88-0180496
- ------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
970 EAST MAIN STREET, SUITE 200
GRASS VALLEY, CALIFORNIA 95945
- ------------------------ -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (916) 477-5961
Indicate by check mark whether Registrant (1) has filed all reports required to
be filed by Section 12, 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ -----
Shares of common stock outstanding as of May 10, 1996: 13,709,336
Transactual Small Business Disclosure Forms
Yes X No
------ -----
1
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BRUSH CREEK MINING AND DEVELOPMENT CO., INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page Number
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial statements
Condensed consolidated balance sheets as of March 31, 1996
(unaudited) and June 30, 1995. 3
Condensed consolidated statements of operations (unaudited) for the three
months ended March 31, 1996 and 1995. 4
Condensed consolidated statements of operations (unaudited) for the nine
months ended March 31, 1996 and 1995 and for the period July 1, 1989 (date
of resumption of development stage enterprise activities) through March 31,
1996. 5
Condensed consolidated statements of cash flows (unaudited) for the nine
months ended March 31, 1996 and 1995 and for the period July 1, 1989 (date
of resumption of development stage enterprise activities) through March 31,
1996. 6
Notes to condensed consolidated financial statements (unaudited) 7
Item 2. Management's discussion and analysis of financial condition
and results of operations. 12
PART II. OTHER INFORMATION 14
</TABLE>
2
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BRUSH CREEK MINING AND DEVELOPMENT CO., INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, 1996 June 30, 1995
-------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 80,668 $ 684,153
Stock purchase price adjustment receivable -- 284,749
Prepaid expenses 5,178 46,760
Inventory 6,341 65,572
Accounts receivable, employees 37,995 37,972
Note receivable 7,000 7,000
------------ ------------
Total current assets 137,182 1,126,206
Office furniture and equipment, net 91,974 89,212
Mineral properties and mining
equipment, net 10,497,037 10,278,584
Deposits 361,647 261,647
------------ ------------
Total assets $ 11,087,840 $ 11,755,649
============ ============
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued
liabilities $ 1,636,650 $ 945,203
Note payable - Zuri Invest 1,200,000 --
Litigation settlement payable 1,104,668 --
Current portion of long term debt -- 34,080
------------ ------------
Total current liabilities 3,941,318 979,283
Other liabilities 3,700 3,700
------------ ------------
Total liabilities 3,945,018 982,983
------------ ------------
Shareholders' Equity:
Common Stock, no par value;
authorized 100,000,000 shares;
10,597,799 issued and outstanding
and 6,863,199 shares
as of March 31, 1996 and June 30,
1995, respectively 40,600,761 36,493,566
Accumulated deficit (11,260,214) (11,260,214)
Accumulated deficit during the
development stage (22,197,725) (14,460,686)
------------ ------------
Total shareholders' equity 7,142,822 10,772,666
------------ ------------
Total liabilities and shareholder's
equity $ 11,087,840 $ 11,755,649
============ ============
</TABLE>
See notes to Condensed Consolidated Financial Statements.
3
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BRUSH CREEK MINING AND DEVELOPMENT CO., INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months
Ended March 31
--------------
1996 1995
---- ----
<S> <C> <C>
Revenues:
Interest income $ 8,759 $ 2,464
Total revenues 8,759 2,464
----------- -----------
Expenses:
General and administrative expenses 579,555 421,779
General mining and exploration 700,667 594,033
Depreciation and amortization 145,484 46,861
Interest expense 1,824 3,185
----------- -----------
Total expenses 1,427,530 1,065,858
----------- -----------
Net loss $ (1,418,771) $(1,063,394)
=========== ===========
Loss per common share before
extraordinary item $ (0.15) $ (0.23)
=========== ===========
Net loss per common share $ (0.15) $ (0.23)
=========== ===========
Weighted average common shares
outstanding 9,724,540 4,646,533
=========== ===========
</TABLE>
See notes to Condensed Consolidated Financial Statements.
4
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BRUSH CREEK MINING AND DEVELOPMENT CO., INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Period from
Ended March 31 July 1, 1989
-------------- through
Revenues: 1996 1995 March 31, 1996
---- ---- --------------
<S> <C> <C> <C>
Sale of joint venture -- -- $ 4,232,000
Other income -- 156,444
Interest income $ 28,145 $ 22,104 $ 151,498
------------ ------------ ------------
Total revenues 28,145 22,104 4,539,942
------------ ------------ ------------
Expenses:
General and administrative expenses 1,717,594 1,038,639 13,146,292
General mining and exploration 3,242,160 2,043,478 8,145,219
Loss on lease abandonments -- -- 392,317
Depreciation and amortization 413,028 133,844 1,102,845
Gain on sale of mining equipment (116) -- 86,910
Interest expense 2,850 4,114 311,284
Litigation settlement 2,389,668 3,697,262
------------ ------------ ------------
Total expenses 7,765,184 3,220,075 26,882,129
------------ ------------ ------------
Loss before extraordinary item (7,737,039) (3,197,971) (22,342,187)
Extraordinary item - net gain from
debt extinguishment, net of tax -- -- 144,462
------------ ------------ ------------
Net loss $ (7,737,039) $ (3,197,971) $(22,197,725)
============ ============ ============
Net income (loss) per common share before
extraordinary item $ (0.93) $ (0.72)
============ ============
Net income (loss) per common share $ (0.93) $ (0.72)
============ ============
Weighted average common shares
outstanding 8,325,772 4,418,755
============ ============
</TABLE>
See notes to Condensed Consolidated Financial Statements.
5
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BRUSH CREEK MINING AND DEVELOPMENT CO., INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Period from
Ended March 31 July 1, 1989
-------------- through
1996 1995 March 31, 1996
---- ---- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (7,737,039) $ (3,197,971) $(22,197,725)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Gain on debt restructuring -- -- (144,462)
Depreciation and amortization 413,028 133,844 1,102,845
Loss on lease abandonments -- -- 444,359
Loss on litigation settlement 2,304,668 -- 3,582,262
Gain on sale of mining equipment (116) -- (35,100)
Other -- -- 43,576
Shareholder payment of services -- -- 105,055
Stock and debt for services -- -- 703,068
Change in stock purchase price adjusted
Receivable 284,749 -- --
Change in inventory 59,231 (51,458) (4,051)
Change in prepaid expenses 41,582 42,034 496,558
Change in deposits and other current assets (100,023) (5,680) (232,111)
Change in accounts payable
and accrued liabilities 691,447 442,938 4,189,107
------------ ------------ ------------
Total adjustment 3,694,566 561,678 10,251,106
------------ ------------ ------------
Net cash provided by (used in)
operating activities (4,042,473) (2,636,293) (11,946,619)
------------ ------------ ------------
Cash flows from investing activities:
Acquisition of mineral properties, equipment,
and deferred developments (600,035) (192,226) (4,957,359)
Acquisition of office equipment (34,092) (18,834) (224,733)
Proceeds from sale of equipment -- -- 294,356
Proceeds from sale of joint venture -- 20,060
------------ ------------ ------------
Net cash used in investing activities (634,127) (211,060) (4,867,676)
------------ ------------ ------------
Cash flows from financing activities:
Advances from (to) affiliates -- -- 2,009,127
Payments made to affiliates -- -- (343,798)
Proceeds from issuance of common stock 4,107,195 922,525 15,197,972
Proceeds from warrant extensions -- -- 207,750
Proceeds from issuance of notes payable -- 143,820 870,043
Payments on long-term debt (34,080) (51,967) (1,049,979)
------------ ------------ ------------
Net cash provided by financing activities 4,073,115 1,014,378 16,891,115
------------ ------------ ------------
Net increase (decrease) in cash (603,485) (1,832,975) 76,820
Cash at beginning of period 684,153 1,841,454 3,848
------------ ------------ ------------
Cash at end of period $ 80,668 $ 8,479 $ 80,668
============ ============ ============
Cash paid during the period for interest
(net of amounts capitalized) $ 2,850 $ 1,180
============ ============
</TABLE>
See notes to Condensed Consolidated Financial Statements.
6
<PAGE> 7
BRUSH CREEK MINING AND DEVELOPMENT CO., INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - Condensed Consolidated Financial Statements
The condensed consolidated balance sheet as of March 31, 1996, the condensed
consolidated statements of operations and cash flows for the three months and
nine months ended March 31, 1996 and 1995 and for the period July 1, 1989 (date
of resumption of development stage enterprise activities) through March 31,
1996, have been prepared by the Brush Creek Mining & Development Co., Inc. (the
Company) without audit. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
financial position, results of operations and cash flows at March 31, 1996 and
for all periods presented have been made.
On October 30, 1995, a jury delivered a verdict against the Company for
$2,799,000 in the Zuri Invest litigation. The Company entered into a settlement
agreement with the plaintiffs on December 14, 1995, pursuant to which the
Company issued to the plaintiffs 1,100,000 shares of the Company's common stock
valued at $1,306,250, based on the closing price of the common stock on the date
of the settlement agreement. As security for its obligations under the
settlement agreement, the Company executed a Promissory Note in the amount of
$1,200,000, and the note is secured by a deed of trust recorded against the
Company's principal mining properties. The note bears interest at the annual
rate of 9.75 percent, the principal of the note and interest thereon is reduced
as the shares issued to the plaintiffs pursuant to the settlement agreement are
sold, dollar for dollar by the gross proceeds generated from such sales. The
note is recorded as a current liability, with a maturity date of June 13, 1996.
There are certain contingent asset-sharing arrangements, but there are no
further contingent liabilities pertaining to the Zuri Invest agreement.
Additionally, the investment group with the Royal Bank of Scotland settled their
legal action with the Company on December 13, 1995 for a combination of cash and
shares of the Company's common stock valued at $1,064,438. The settlement
consists of 216,667 shares of the Company's common stock valued at the December
13, 1995 closing price of $1-1/32 ($223,438), payments of $241,000 cash
scheduled from February 1, 1996, to September 30, 1996, and finally, either
$600,000 cash or 300,000 shares of the Company's common stock, or some
combination thereof, to be paid and/or issued on December 13, 1996.
In summary, these settlement details are restated below, with their impact on
the Company's statement of operations and accumulated deficit during the
development stage:
<TABLE>
<CAPTION>
Common Stock
------------
Statement of
Plaintiff Cash Shares Value Operations charge
- --------- ---- ------ ----- -----------------
<S> <C> <C> <C> <C>
Zuri - 1,100,000 $1-3/16 $1,306,250
Royal Bank of
Scotland $841,000 841,000
216,667 1-1/32 223,438
----------
$2,370,688
==========
</TABLE>
7
<PAGE> 8
This reflects all known amounts of contingent liabilities as March 31, 1996, but
if the Royal Bank group decides before December 13, 1996 to take stock instead
of cash, and if the stock is trading at a price greater than $2.00 per share,
the excess amount more than $2.00 times the number of issued shares will be
charged to operations at the time of issuance. The Royal Bank group also has
certain rights to contingent assets, which have not been nor will be charged to
operations.
See "Legal Proceedings."
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these consolidated
statements be read in conjunction with the financial statements and notes
thereto included in the Company's June 30, 1995 Form 10-KSB\A. The results of
operations for the periods ended March 31, 1996 and 1995 are not necessarily
indicative of the operating results for the full year.
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary, B. Creek Acquisition Corp.
8
<PAGE> 9
BRUSH CREEK MINING AND DEVELOPMENT CO., INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 - BASIS OF PRESENTATION
The Company was incorporated in 1982 and operated as a mining and mineral
development company until April 17, 1989, at which time its mining operations
conducted through the Brush Creek Joint Venture (BCJV) (40% owned) were
terminated. Shortly thereafter, the Company became actively engaged in acquiring
additional mineral properties, raising capital, and preparing properties for
resumed production. The Company did not have any significant operations or
activities from April 17, 1989 through June 30, 1989. Accordingly, the Company
is deemed to have reentered the development stage effective July 1, 1989.
In February 1992, the Company began limited production at the Ruby Mine from the
Lawry and Ruby placer channels. In 1995, the Company paved 1.3 miles of road in
an effort to make production a year-round effort. The Company has conducted
limited production during certain periods from 1992 to 1996. However, the
Company has not commenced economic production and is still considered in the
development stage.
The Company's financial statements have been presented on the basis that it is a
going concern, which contemplates the realization of the mineral properties and
other assets and the satisfaction of liabilities in the normal course of
business. The Company has incurred losses of $33,457,939 from inception to March
31, 1996, and it has a working capital deficit of $3,804,136 at March 31, 1996.
These factors may raise doubt about the Company's ability to continue as a going
concern. Management is actively seeking additional sources of capital to fund
current and future operations. However, there can be no assurance that such
capital will be obtained. There is no assurance that the Company will be
successful in establishing proven ore reserves or determining if the mineral
properties can be mined economically. These consolidated financial statements do
not include any adjustments that might result from the outcome of these
uncertainties.
Management of the Company periodically reviews the recoverability of the
capitalized mineral properties and mining equipment. Management takes into
consideration various information including, but not limited to, historical
production records from previous mine operations, results of exploration
activities conducted to date, estimated future metal prices, and reports and
opinions of internal and external geologists, mine engineers and consultants.
Accordingly, in management's opinion, based on such information, the capitalized
costs in mineral properties and mining equipment do not exceed their estimated
net realizable value.
9
<PAGE> 10
BRUSH CREEK MINING AND DEVELOPMENT CO., INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 - STOCKHOLDERS' EQUITY
During the nine months ended March 31, 1996, the Company received $3,669,714
from the sale of 3,158,664 shares of common stock through Regulation S offerings
and a total of $722,231 related to Regulations S stock purchase agreements where
the investors were required to pay additional funds to the Company if during a
valuation period the average share price was greater than the original purchase
price. Also, the Company issued 575,936 shares of common stock related to a
Regulation S stock purchase agreement where the Company was required to issue
additional shares if during a valuation period the average share price fell
below the original purchase price. On December 14, 1995, the Board of Directors
granted the board an aggregate of 350,000 options at $1.13 per share, the fair
market value at the date of the grant. James Chapin received 125,000 options,
Albert Miller 75,000 options, Howard Kalodner 75,000 options and Ken Friedman
75,000 options.
On January 1, 1996, the board granted 25,000 options to a consultant to the
Company at a price of $.7875 per share, 90 percent of the market value of the
Company's stock on December 29, 1995.
NOTE 4 - SUBSEQUENT EVENTS
Subsequent to March 31, 1996, the Company received net proceeds of $400,000 from
an offshore, two year, 7% convertible debenture. The principal balance is due
and payable two calendar years from the date of the transaction. The interest
payments are due annually. The subscriber has the option of converting all or
any part of the principal to the Company's common stock forty-five days at any
time after the closing date of the transaction. The conversion price will be 70%
of the closing average bid price calculated from the five consecutive trading
days preceding the date on which the conversion is elected. In addition, the
Company has received $1,288,000 from the sale of 1,794,870 shares of the
Company's common stock pursuant to Regulation S. Such shares were issued and
sold at a 35% discount from the closing bid price on the day prior to the
sales.
On April 4, 1996, a jury returned a verdict in favor of the Company in the
action by Consolidated Sierra Gold Mines, Inc. (as more particularly described
in the Company's Annual Report on Form 10-KSB for the year ended June 30, 1995,
as amended, and the Company's Quarterly Report on Form 10-QSB for the quarter
ended December 31, 1995, as amended). In addition, the jury returned a verdict
against Consolidated Sierra Gold Mines in favor of the Company in the amount of
$30,000 on the Company's cross-action. Following the verdict, the Company filed
a motion to pierce the corporate veil of Consolidated Sierra Gold Mines, Inc.
which is scheduled to be heard on May 13, 1996. Until the Company's motion is
resolved and judgment on the verdict is entered, the period during which the
plaintiffs in the case may appeal the verdict will not begin.
On April 4, 1996 the Company was served with the Anderson's answer to the
Sacramento Action (as defined under "Legal Proceedings") and their
cross-complaint against the Company. The answer generally denied the
allegations of the Company's complaint and asserted various affirmative
defenses. The cross-complaint seeks judicial determination and declarations
that the Company (1) is obligated to advance the Andersons' defense costs
(including costs of appeal) in the Zuri litigation and defense costs in the
Federal Action (as defined under "Legal Proceedings"), and (2) is obligated to
indemnify them from the judgment in the Zuri litigation and any judgment that
might be rendered against them in the Federal Action.
Also, on April 4, 1996, the Company was served with a motion by the Andersons
for summary adjudication of two of their cross claims which would have forced
the Company to advance the Andersons' defense cost in the Zuri litigation and
the Federal Action. On May 3, 1996, the Andersons' motion was heard by the
superior court and denied.
The Company answered the Andersons' cross-complaint on May 6, 1996 generally
denying the allegations and asserting various defenses. The Company also
anticipates amending its original complaint to assert an additional claim to
hold the Andersons liable for the entire amount of the Royal Bank of Scotland
settlement.
10
<PAGE> 11
The Company has been requested pursuant to a non-public informal inquiry by the
staff of the Commission to provide information to the staff of the Commission
regarding the Company's financing activities in reliance upon Regulation S under
the Securities Act. The Commission has advised the Company that the inquiry
should not be construed as an indication by the Commission or its staff that any
violations of law have occurred, nor should it be considered a reflection upon
any person.
11
<PAGE> 12
ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had a working capital deficit of $3,804,136
compared to a $146,923 working capital surplus at June 30, 1995.
During the nine-month period ended March 31, 1996, the Company raised $3,669,714
from the sale of 3,158,664 shares of common stock. The Company estimates its
mining development and operating costs to be approximately $1.2 to $1.7 million
for the remainder of the fiscal year ending June 30, 1996 and additional
financing will be required in order for the Company to cover such costs. The
majority of funds are needed for the operations at the Ruby mine. The Company
anticipates raising the needed funds from the sale of common stock or joint
ventures. No assurance can be provided that the Company will be able to raise
funds to continue and expand its operations. If the Company is unable to raise
the funds needed for the Company's operations, the Company may have to scale
back its development plans which could adversely affect the Company's business
objectives. In addition, the Company may have to sell its assets in order to
meet its obligations and could close some of its properties for failure to make
lease payments. In the event the Company is unable to obtain additional
financing the Company may be required to seek protection under the bankruptcy
laws.
A new ball mill and cone crusher were purchased by the Company in February
1996. The new mill replaced an existing hammer mill and is expected to begin
crushing ore from the Wolfe vein in April 1996. The Company also plans to
re-open the Lawry to mine underground placer channels in May 1996.
12
<PAGE> 13
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996
The Company incurred a net loss of $1,418,771 for the quarter ended March 31,
1996, compared to a net loss of $1,063,394 during the same quarter in 1995.
General and administrative expenses increased by $157,776 from the same quarter
in the prior year. General mining costs increased by $106,634 due to the
increase in development activity at the Ruby mine.
NINE MONTHS ENDED MARCH 31, 1996
The Company incurred a net loss of $7,737,039 for the nine months ended March
31, 1996 compared to a $3,197,971 net loss for the same period in 1995. General
and Administrative expenses increased by $678,955 from the same period in the
prior year primarily due to litigation fees and expenses. The Company also
incurred a loss from litigation settlements of $2,389,668. General mining costs
increased by $1,198,682 from the prior year due to increased activity at the
Ruby, Rising Sun, Peavine and Kate Hardy Mines.
Management expects losses to continue until mining operations are sufficient to
process at least 35 ounces of gold per day. If mining operations reach that
level, the ability of the Company to achieve net income is dependent on the
grade of ore and on the price of gold. Historically, the price of gold has been
volatile; since the end of 1987, the price of gold has declined from a high of
approximately $500 per ounce to approximately $350 per ounce. Over the last
twelve months gold prices have been higher, and have recently closed at the
highest level in more than three years. However, a downward trend in the price
of gold could have a material adverse effect on the Company's revenues from its
mining operations.
13
<PAGE> 14
PART 11 - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
LITIGATION
On December 14, 1995, the Company entered into an agreement (the "Zuri
Agreement) with Zuri Invest A. G., Andre Michaels and Peter Woodfield (the "Zuri
Plaintiffs") in connection with the Zuri Invest action (as described more fully
in the Company's Form 10-KSB for the year ended June 30, 1995, as amended) to
partially satisfy the joint and several judgment entered in the Zuri Invest
action against the Company and Simone Anderson and James Anderson (collectively,
the "Andersons") on October 31, 1995 (the "Judgment"). The Zuri Plaintiffs
agreed, subject to the receipt of the consideration described below, not to seek
any further recovery directly from the Company on the Judgement, and to release
the Company from any further liability thereunder. The Zuri Plaintiffs also
agreed not to pursue recovery against the Andersons on the Judgment if it is
judicially determined that the Andersons have indemnification rights against the
Company with respect to the Judgment. The Company issued and delivered to each
of plaintiffs Woodfield and Michaels 250,000 shares of the Company's common
stock. The Company issued 600,000 shares of the Company's common stock to Zuri
Invest and delivered 200,000 of such shares to Zuri Invest. The remaining
400,000 shares are being held in escrow for delivery to Zuri Invest in two
tranches of 200,000 shares each during the period from June 1, 1996 to September
9, 1996.
As security for the Company's obligations to issue and deliver the above
described shares of common stock, the Company issued a promissory note in the
amount of $1.2 million payable to the Zuri Plaintiffs. The note is secured by a
deed of trust on all real property and patented and unpatented mining claims
owned by the Company. Pursuant to the Zuri Agreement, the principal amount of
the note shall be reduced as the shares issued to the Zuri Plaintiffs are sold,
dollar for dollar by the gross proceeds generated from such sales.
Pursuant to the Zuri Agreement, the Company also assigned to the Zuri Plaintiffs
an interest (33% of the Company's 60% interest) in claims asserted against the
Andersons and their controlled corporations in the action entitled Brush Creek
Mining and Development v. F.James Anderson, et al., currently pending in the
United States District Court, Northern District of California.
On December 13, 1995, the Company entered into an agreement (the "Royal Bank
Agreement") to settle the action by the Royal Bank of Scotland (as described
more fully in the Company's Form 10-KSB for the year ended June 30, 1995, as
amended) by delivering to the plaintiffs in such suit (the "Royal Bank
Plaintiffs") 216,667 shares of the Company's common stock and cash in the amount
of $241,000. The Company also assigned to the Royal Bank Plaintiffs a portion of
its interest in any total recovery from claims against the law firm formerly
known as Bartel, Eng, Miller & Torngren, the Company's former legal counsel
("Bartel, Eng"). On December 13, 1996, the Company is further required to
deliver to each of the Royal Bank Plaintiffs, at his or her option, additional
shares of the Company's common stock or additional cash. The number of shares of
common stock or the amount of cash each Royal Bank Plaintiff is entitled to
receive is based on the amount of his or her pro rata interest in amounts paid
by the Company pursuant to the Royal Bank Agreement. If all Royal Bank
Plaintiffs elect to receive common stock the Company will be required to issue
and deliver a maximum of 300,000 shares in the aggregate and if all Royal Bank
Plaintiffs elect to receive cash, the Company will be required to deliver cash
in the maximum aggregate amount of $600,000.
14
<PAGE> 15
PART 11 - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
LITIGATION (CONTINUED)
The Company's obligations under the Royal Bank Agreement are secured by (1) a
deed of trust on all real property and patented and unpatented mineral claims
owned by the Company, (2) a first-priority security interest in all of the
Company's right, title and interest in and to any and all goods, products,
yield, receivables, inventory (including any gold from any mines), any and all
exploration and drilling information, data, maps, reports or surveys, and any
and all income and proceeds derived from the Company's mining operations on
property which the Company presently or subsequently owns or leases, (3) a
first-priority security interest in the Company's right, title and interest in
and to any total recovery by the Company on the claims against Bartel, Eng, and
(4) a stipulated judgment in the amount of $3,250,000. The priority and other
matters related to the enforcement of the respective deeds of trust executed by
the Company pursuant to the Zuri Agreement and the Royal Bank Agreement are
determined by an intercreditor agreement between the Zuri Plaintiffs and the
Royal Bank Plaintiffs.
The Royal Bank Agreement provides that an uncured default under the Zuri
Agreement constitutes a default under the Royal Bank Agreement and that as
uncured default under the Royal Bank Agreement constitutes a default under the
Zuri Agreement.
The Company has registered the 1,616,667 shares of common stock issued and
delivered pursuant to the Zuri Agreement and the Royal Bank Agreement, which
represent approximately 15 percent of the total outstanding shares of the
Company's common stock as of March 31, 1996. This number includes the 300,000
additional shares that may be issued pursuant to the Royal Bank Agreement.
On October 24, 1994, Brush Creek filed an amended complaint against F. James
Anderson, Simone Anderson, Edward M. Lawson, Consolidated Sierra Gold Mines,
Inc. ("CSGM"), Independent Sierra Gold Mines, Inc., ("ISGM"), Bartel, Eng,
Miller & Torngren, attorneys, Robert Sibthorpe, Coopers & Lybrand and Yorkton
Securities as defendants in an action to recover damages. The suit was filed in
the United States District Court for the Northern District of California as Case
No. C94-3487 (the "Federal Action"). On April 28, 1995, Brush Creek filed a
third amended complaint which alleges causes of action against the defendants as
follows. The lawsuit seeks to recover damages against James and Simone Anderson
for breach of fiduciary duty, for violations of Rule 10 b-5 and 16(b), for
violations of the California Corporations Code S25400(d) and S25401. The lawsuit
seeks to recover damages against Edward M. Lawson, Robert Sibthorpe and Yorkton
Securities, Inc. for breach of fiduciary duty. The lawsuit seeks to recover
damages against James and Simone Anderson, ISGM, CSGM, Robert Sibthorpe, and
Yorkton Securities, Inc. for intentional and negligent misrepresentation. The
lawsuit seeks to recover damages against the firm of Bartel, Eng, Miller &
Torngren based upon breach of fiduciary duty and negligence claims. The law firm
of Bartel, Eng, Linn & Schroder has (as successor in interest to Bartel, Eng,
Miller & Torngren) filed a counterclaim in this litigation seeking recovery from
Brush Creek of legal fees totaling approximately $95,000. The accounting firm of
Coopers & Lybrand has been dismissed as a defendant from the litigation without
prejudice.
On November 3, 1994, Brush Creek was served with a complaint filed in Superior
Court of the State of California in and for the County of Nevada. Case No. 52943
by Consolidated Sierra Gold Mines, Inc. ("CSGM") for amounts claimed to be due
and owing by Brush Creek. The complaint sought to recover $335,000 pursuant to
an alleged open book account and $950,000 pursuant to fees and expenses which
CSGM allegedly incurred on behalf of Brush Creek for general financial advice
and advice concerning mergers and acquisitions. The case went to trial in early
March 1996. See "Subsequent Events".
15
<PAGE> 16
PART 11 - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
LITIGATION (CONTINUED)
On November 7, 1994, Brush Creek was served with a complaint filed in the
Superior Court of the State of California in and for the County of Sacramento,
Case No. 543926, by James Anderson and Simone Anderson for amounts claimed to be
due and owing by Brush Creek. The complaint seeks to recover $58,821 and
unspecified further sums they have incurred or will incur in legal fees and
costs in providing a defense in the Zuri Invest action discussed in Brush
Creek's Annual Report on Form 10-K for the year ending June, 1994. Brush Creek
has entered into a settlement in this matter whereby Brush Creek has paid the
past legal fees incurred by Mr. & Mrs. Anderson and has agreed to pay the legal
fees they continue to incur in defending themselves in the Zuri Invest action.
OnFebruary 16, 1996, this agreement became a stipulated judgment which concluded
the action.
On February 8, 1996, the Company filed a complaint against F. James Anderson and
Simone Anderson in Superior Court of the State of California, in and for the
County of Sacramento, Case No. 96AS 00513 (the "Sacramento Action"). The
complaint seeks (A) judicial determination and declarations that the Company
(1) has no further obligations to advance defense fees and costs incurred by
the Andersons in connection with the Zuri litigation, including on the
Andersons' appeal of that judgment, (2) is entitled to recoup defense fees and
costs allocable to the Andersons' defense of claims in the Zuri litigation for
which they were found liable, (3) is not required to indemnify the Anderson for
their liability in the Zuri litigation, (4) has no duty or obligation to the
Andersons to account for, replenish, and/or return monies to or pay interest on
the $200,000 provided by the Andersons as partial indemnification to the
Company in connection with the Royal Bank litigation, and (5) is entitled to
have all amounts returned to the Company from the $200,000 which were disbursed
for the purposes other than to indemnify the Company such that the Company
receives the full net benefit of the $200,000, and (B) equitable
indemnification to collect from the Andersons their proportionate share of the
judgment in the Zuri litigation. See "Subsequent Events".
16
<PAGE> 17
PART 11 - OTHER INFORMATION (CONTINUED)
ITEM 2 - CHANGES IN SECURITIES - NONE
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES - NONE
ITEM 4 - SUBMISSION OF MATTERS TO VOTE FOR SECURITY HOLDERS
On February 12, 1996, the Company held an annual meeting of shareholders to vote
upon the election of directors and approve appointment of Brown, Armstrong,
Randall & Reyes as independent auditors for fiscal year 1996.
At the annual meeting James S. Chapin, Howard Kalodner & Albert Miller were
elected to serve as directors until the next annual meeting. For each of the
above directors 6,994,603 shares were represented. The following are the results
of the voting:
<TABLE>
<CAPTION>
Howard Kalodner Albert Miller James S. Chapin Kenneth S. Friedman
<S> <C> <C> <C> <C>
For nominees 6,956,155 6,954,070 6,924,237 6,956,219
Withhold authority 5,656 7,741 13,166 5,592
Abstained 32,792 32,792 57,200 32,792
--------- --------- --------- ---------
6,994,603 6,994,603 6,994,603 6,994,603
========= ========= ========= =========
</TABLE>
In addition the shareholders voted 6,905,059 shares for approval of Brown,
Armstrong, Randall & Reyes as independent auditors, 17,321 shares voted against
and 71,343 shares abstained.
Item 5 - Other Information - None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K.
(A) Exhibit 11.1 Computation of (Loss) Income Per Share
(B) 8-K filed February 12, 1996, Brush Creek Mining settles lawsuits
Amended 8-K filed February 14, 1996 to correct February 12, 1996 8-K
17
<PAGE> 18
SIGNATURES
BRUSH CREEK MINING AND DEVELOPMENT CO., INC.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Capacity Date
/s/ James S. Chapin Chief Executive Officer
- --------------------------- --------------------
James. S. Chapin
18
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 80,668
<SECURITIES> 0
<RECEIVABLES> 7,000
<ALLOWANCES> 0
<INVENTORY> 6,341
<CURRENT-ASSETS> 137,182
<PP&E> 11,601,283
<DEPRECIATION> 1,012,272
<TOTAL-ASSETS> 11,087,840
<CURRENT-LIABILITIES> 3,941,318
<BONDS> 0
0
0
<COMMON> 40,600,761
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 11,087,840
<SALES> 0
<TOTAL-REVENUES> 28,145
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,765,184
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,737,039)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,737,039)
<EPS-PRIMARY> (0.93)
<EPS-DILUTED> (0.93)
</TABLE>
