<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
For the Quarter Ended November 30, 1995
Commission File Number 0-22382
AURTEX, INC.
(Name of small business issuer in its charter)
Nevada 56-1051491
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1410 Springhill Road, McLean, VA 22102
Address of principal executive offices
(703) 893-3744
Issuer's Telephone Number
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
--- ---
As of November 30, 1995 there were outstanding 23,582,540 shares of the
Registrant's Common Stock.
<PAGE>
AURTEX, INC.
REPORT ON FORM 10-QSB
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets November 30, 1995 (unaudited) and February 28, 1995................... 1
Statements of Operations for the Nine Month Periods Ended
November 30, 1995 and 1994, and the Period From August 19, 1990
(inception) to November 30, 1995 (unaudited)......................................... 2
Statements of Operations for the Three Month Periods Ended
November 30, 1995 and 1994 (unaudited)............................................... 3
Statements of Stockholders' Equity for the Period From
March 19, 1990 (inception) to February 28, 1995 and the Nine
Month Period Ended November 30, 1995 (unaudited)..................................... 4
Statements of Cash Flows for the Nine Month Periods Ended
November 30, 1995 and 1994, and the Period From August 19, 1990,
(Inception) to November 30, 1995 (unaudited)......................................... 5
Notes to Unaudited Financial Statements.............................................. 7
Item 2. Management's Plan of Operations...................................................... 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.................................................................... 16
Item 6. Exhibits and Reports on Form 8-K..................................................... 16
SIGNATURES.................................................................................... 16
</TABLE>
<PAGE>
AURTEX, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
November 30, February 28,
1995 1995
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 77,549 $1,485,239
Investments (Note 2) 684,327 509,327
Notes Receivable - Related Parties (Note 3) 29,401 663,585
Note Receivable (Note 4) 133,459 -
Deposits and Prepaid Expenses 143,559 68,684
------------ ------------
Total Current Assets 1,068,295 2,726,835
Equipment, Net of Accumulated Depreciation of
$ 74,343 and $ 56,321, respectively 114,663 221,742
Capitalized Mining Claim Costs 2,240,000 2,240,000
------------ ------------
Total Assets $3,422,958 $5,188,577
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 210,234 $ 175,630
Due to Stockholders and Affiliated Entities 99,361 109,589
------------ ------------
Total Current Liabilities 309,595 285,219
------------ ------------
Commitments and Contingencies (Note 7) - -
Stockholders' Equity: (Note 5 and 6)
Preferred stock, $.001 per share par value,
5,000,000 shares authorized, no shares
issued and outstanding - -
Common stock, $.001 per share par value,
50,000,000 shares authorized, 23,582,540
and 19,682,540 shares issued and
outstanding, respectively 23,583 19,683
Additional Paid in Capital 12,477,508 12,370,408
Accumulated Deficit (9,387,728) (7,486,733)
------------ ------------
Total Stockholders' Equity 3,113,363 4,903,358
------------ ------------
Total Liabilities and Stockholders' Equity $3,422,958 $5,188,577
============ ============
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
-1-
<PAGE>
AURTEX, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
FOR THE NINE MONTH PERIODS ENDED NOVEMBER 30, 1995 AND 1994, AND THE
CUMULATIVE PERIOD FROM INCEPTION, MARCH 19, 1990 TO NOVEMBER 30, 1995
<TABLE>
<CAPTION>
Cumulative
Nine Month Nine Month From
Period Ended Period Ended March 19, 1990
November 30, November 30, Date of
1995 1994 Inception
------------- ------------- ----------------
<S> <C> <C> <C>
Aurtex Gold Assay System Development Costs $ 325,086 $ 644,337 $ 2,204,860
Gold Exploration Costs 480,030 689,045 3,093,127
General and Administrative Costs 968,899 1,358,268 4,104,540
------------- ------------- ----------------
Total Operating Costs 1,774,015 2,691,650 9,402,527
Equity in Loss of Pangold S.A. (Note 2) - - 15,673
Allowance for Possible Writedown of Note
Receivable 170,000 - 170,000
Interest Expense, related parties 1,818 6,364 91,064
Interest Income (44,838) (129,606) (291,536)
------------- ------------- ----------------
Net Loss $ (1,900,995) $ (2,568,408) $ (9,387,728)
============= ============= ================
Net Loss per Share $ (0.09) $ (0.14) $ (0.80)
============= ============= ================
Weighted Average Common Shares Outstanding 21,191,446 17,821,321 11,754,021
============= ============= ================
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
-2-
<PAGE>
AURTEX, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
FOR THE THREE MONTH PERIODS ENDED NOVEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
Three Month Three Month
Period Ended Period Ended
November 30, November 30,
1995 1994
-------------- --------------
<S> <C> <C>
Aurtex Gold Assay System Development Costs $ 83,874 $ 177,102
Gold Exploration Costs 82,321 330,806
General and Administrative Costs 359,502 449,979
-------------- --------------
Total Operating Costs 525,697 957,887
Equity in Loss of Pangold S.A. (Note 2) - -
Allowance for Possible Writedown of Note Receivable (Note 3) - -
Interest Expense, related parties 70 444
Interest Income (7,368) (50,050)
-------------- --------------
Net Loss $ (518,399) $ (908,281)
============== ==============
Net Loss per Share $ (0.02) $ (0.05)
============== ==============
Weighted Average Common Shares Outstanding 23,071,981 19,272,540
============== ==============
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
-3-
<PAGE>
AURTEX, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTH PERIOD ENDED NOVEMBER 30, 1995, AND THE
CUMULATIVE PERIOD FROM INCEPTION, MARCH 19, 1990 TO FEBRUARY 28, 1995
<TABLE>
<CAPTION>
Additional Stock
Common Stock Paid In Accumulated Subscriptions
Shares Amount Capital Deficit Receivable Total
--------- ------------- ------------- ------------- --------------- --------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock on March 19,
1990 2,000,000 $ 2,000 $ (1,000) $ $ $ 1,000
Merger with Adcom Systems, Inc. on
December 4, 1992 accounted for as a
recapitalization, effective March
19, 1990, inception. 411,780 412 (84,691) (84,279)
Issuance of Preferred Stock in
connection with the transfer mining
claims on August 9, 1991, and
converted to common stock
simulantaneous with the merger with
Adcom Systems, Inc. on December 4,
1992. 8,010,000 8,010 (7,260) 750
Sale of Preferred Stock in private
offering between January 1 and
February 14, 1992, and converted to
common stock simultaneous with the
merger with Adcom Systems, Inc. 187,870 188 563,420 563,608
Sale of 327,000 Series C Warrants on
January 1, 1992. 3,270 3,270
Sale of Preferred Stock in private
offering between March 1 and
September 23, 1992, and converted to
common stock simultaneous with the
merger with Adcom Systems, Inc. 516,343 516 1,548,514 1,549,030
Sale of 522,000 Series B Warrants and
3,342,000 Series C Warrants between
June 12 and September 16, 1992. 38,640 38,640
Common stock to be issued in connection
with the merger of Adcom Systems, Inc. 749,995 750 19,500 (20,250) 0
Sale of common stock in a private
offering between June 15 and August
31, 1993. 2,191,600 2,192 4,381,008 4,383,200
Exercise of Stock Options between
April 30, 1993 and January 31, 1994. 605,000 605 29,645 30,250
Exercise of Series B Warrants and Series
C Warrants between May 13, 1993 and
February 28, 1994. 1,223,281 1,223 1,652,038 1,653,261
Conversion of accrued salaries to common
stock on June 30, 1993. 62,500 63 124,937 125,000
Receipt of stock subscription 20,250 20,250
Series C Warrants issued to two directors
on November 1, 1993 43,500 43,500
Sale of common stock in a private
financing between May 10 and July
15, 1994. 1,831,623 1,831 3,266,589 3,268,420
Stock issued for services in connection
with a private financing in June 1994 42,857 43 (43) 0
Exercise of Warrants In June of 1994 739,691 740 738,951 739,691
Exercise of Stock Options In August and
December of 1994 1,090,000 1,090 53,410 54,500
Other 20,000 20 (20)
Net loss, Inception to February 28,
1995 (7,486,733) (7,486,733)
---------- ------------- ------------- ------------- --------------- ----------
Balances at February 28, 1995 19,682,540 19,683 12,370,408 (7,486,733) 0 4,903,358
Stock Issued to an Officer (Note 5) 200,000 200 20,800 21,000
Stock issued to BAGA as up-front
placement fee (Note 5) 3,000,000 3,000 (3,000) 0
Exercise of Stock Options 300,000 300 14,700 15,000
Sale of common stock in a private
financing (Note 2) 400,000 400 74,600 75,000
Net loss (1,900,995) (1,900,995)
---------- ------------- ------------- ------------- --------------- ----------
Balances at November 30, 1995
(Unaudited) 23,582,540 $ 23,583 $ 12,477,508 $ (9,387,728) $ 0 $3,113,363
========== ============= ============= ============= =============== ===========
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
-4-
<PAGE>
AURTEX, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
FOR THE NINE MONTH PERIODS ENDED NOVEMBER 30, 1995 AND 1994, AND THE
CUMULATIVE PERIOD FROM INCEPTION, MARCH 19, 1990 TO NOVEMBER 30, 1995
<TABLE>
<CAPTION>
Cumulative
Nine Month Nine Month From
Period Ended Period Ended March 19, 1990
November 30, November 30, Date of
1995 1994 Inception
-------------- -------------- ----------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Loss $ (1,900,995) $ (2,568,408) $ (9,387,728)
Adjustments to Reconcile Net Loss to
Cash Flow Used In Operations:
Depreciation 48,111 30,988 104,432
Accrued Interest Income on Restricted
Marketable Securities, Treasury Bills
and Notes Receivable 30,135 (53,135) (148,471)
Loss on the Disposal of Equipment 52,472 52,472
Equity in Loss of Pangold S.A. - - 15,673
Write Down of Prior Years Mining Claim Costs - - 913,027
Compensation Portion of Series C Warrants
Issued to Two Directors - - 43,500
Allowance for Possible Writedown of Note
Receivable (Note 3) 170,000 170,000
Compensation Portion of Stock Grant to an
Officer (Note 5) 21,000 - 21,000
Increase in Deposits and Prepaid Expenses (74,875) (60,691) (143,559)
Increase (Decrease) in Accounts Payable 34,603 86,593 (45,580)
Increase (Decrease) in Due to
Shareholders and Affiliated Entities (9,927) (167,052) 142,720
-------------- -------------- ----------------
Cash Flows Used In Operating Activities (1,629,476) (2,731,705) (8,262,514)
-------------- -------------- ----------------
Cash Flows From Investing Activities:
Increase in Capitalized Mining Claim Costs - (1,040,680) (2,534,810)
Purchase of Equipment (3,504) (181,546) (281,567)
Proceeds From the Sale of Equipment 10,000 10,000
Increase of Note Receivable (125,000) (125,000)
Investment in Pangold S.A. (Note 2) (175,000) - (700,000)
Purchase of Adcom Systems, Inc. - - (84,279)
-------------- -------------- ----------------
Cash Flows Used In Investing Activities (293,504) (1,222,226) (3,715,656)
-------------- -------------- ----------------
Cash Flows From Financing Activities:
Proceeds From Notes Payable - Stockholder 25,000
Repayment of Notes Payable - Stockholder (25,000)
Increase of Notes Receivable - Related Parties (705,000) (705,000)
Repayment of Notes Receivble - Related Parties 5,599 500,000 505,599
Proceeds From the Sale of Common Stock, Net 75,000 3,268,671 9,700,258
Proceeds From the Sale of Series B and Series
C Warrants 41,910
Proceeds From the Exercise of Series B Warrants 1,433,264
Proceeds From the Exercise of Series C Warrants 320,000 539,997
Proceeds From the Exercise of Options 15,000 35,000 99,750
Receipt of Stock Subscription 419,691 439,941
-------------- -------------- ----------------
Cash Flows (Used In) Provided By Financing
Activities 515,290 3,418,671 12,055,719
-------------- -------------- ----------------
(Decrease) Increase in Cash (1,407,690) (535,260) 77,549
Cash, Beginning of Period 1,485,239 2,285,255 0
-------------- -------------- ----------------
Cash, End of Period $ 77,549 $ 1,749,995 $ 77,549
============== ============== ================
</TABLE>
(Continued)
-5-
<PAGE>
AURTEX, INC.
STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
FOR THE NINE MONTH PERIODS ENDED NOVEMBER 30, 1995 AND 1994, AND THE
CUMULATIVE PERIOD FROM INCEPTION, MARCH 19, 1990 TO NOVEMBER 30, 1995
<TABLE>
<CAPTION>
Cumulative
Nine Month Nine Month From
Period Ended Period Ended March 19, 1990
November 30, November 30, Date of
1995 1994 Inception
------------ ------------ --------------
<S> <C> <C> <C>
Supplemental Cash Flow Information:
Noncash financing activities involving
the assumption of liabilities and issuance
of capital stock in connection with the
transfer of the mining claims as follows:
Issuance of capital stock $ 750
Assumption of liabilities 517,467
--------------
Capitalized mining claim costs 518,217
==============
Receipt of marketable securities in connection
with the sale of 250,000 $ 750,000
Transfer of marketable securities to stockholder in
satisfaction of a note payable (750,000)
--------------
$ 0
==============
Issuance of capital stock in exchange for a
reduction in the amount due to a stockholder $ 140,000
==============
Issuance of common stock in receipt of
notes receivable $ 419,691 $ 439,941
============= ==============
Issuance of 62,500 shares of common stock in
exchange for a reduction in the amount due
to individual stockholder $ 125,000
==============
Issuance of 3,000,000 shares of common stock as
as up-front placement fee, recorded at par value
(Note 5)
Common stock $ 3,000 $ 3,000
Additional paid in capital (3,000) (3,000)
------------- --------------
$ 0 $ 0
============= ==============
Exchange of a 40% Capital Stock Interest
in Pangold S.A. for 2,520,000 Restricted Shares
of Northfield Minerals, Inc. Common Stock
(Note 2) $ 684,327 $ 684,327
============= ==============
Cash paid for interest $ 0 $ 21,493 $ 5,324
============= ============= ==============
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
-6-
<PAGE>
AURTEX, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
November 30, 1995
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
- ---------------------
The balance sheet of Aurtex, Inc. as of November 30, 1995; and the related
statements of operations for the three and nine month periods ended November 30,
1995 and 1994, and for the period from August 19, 1990 (inception) to November
30, 1995; and the statements of cash flows and stockholders' equity for the nine
month period ended November 30, 1995 are unaudited. In the opinion of
management of the Company, all adjustments necessary for a fair presentation of
such financial statements have been included.
The February 28, 1995 balance sheet was derived from the audited financial
statements. The unaudited financial statements have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in the annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to those rules and regulations. The
Company believes that the disclosures made are adequate to make the information
presented not misleading.
The financial statements should be read in conjunction with the audited
financial statements and notes included in the Company's February 28, 1995
annual report filed on Form 10-KSB.
NOTE 2: INVESTMENTS
In May 1995, the Company increased it capital stock ownership in Pangold S.A. to
40% for an additional investment of $ 175,000. Also in May 1995, the Company
exchanged a 32% capital stock interest it held in Pangold to Northfield
Minerals, Inc. for 2,080,000 shares of restricted Northfield common stock. On
November 20, 1995, the Company exchanged its remaining 8% capital stock interest
in Pangold for an additional 440,000 shares of restricted Northfield common
stock.
During February, 1996, the Company sold 853,627 shares of Northfield common
stock it held for $ 500,000. The market value of the remaining 1,666,373
shares of restricted Northfield common stock the Company holds has a market
value on February 13, 1996 of approximately $ 1,600,000 based on the quoted bid
price on the Toronto Stock Exchange.
7
<PAGE>
AURTEX, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
November 30, 1995
NOTE 2: INVESTMENTS (CONTINUED)
On December 12, 1995, the agreement that the Company previously entered into
with a European entity for the purchase of its restricted stock of Northfield
and its capital stock interest in Pangold S.A. was terminated. In consideration
for this termination, the Company agreed to sell to this entity, through
February 15, 1996, to up to 1,000,000 units, each unit consisting of two shares
of Company Regulation S restricted common stock and a warrant for the purchase
of one share of Company Regulation S restricted common stock for $ 0.375. As of
February 15, 1996, a total of $ 85,500 was invested under this agreement,
$ 75,000 in October 1995 and $ 10,500 in January 1996, and the Company issued
456,000 shares of common stock and a warrant for the purchase of 228,000 shares
of common stock, expiring two years from the date of their issuance. The
exercise price if this warrant was subsequently repriced by the Board of
Directors to $ 0.30 per share as described in Note 5.
NOTE 3: NOTES RECEIVABLE - RELATED PARTIES
Notes receivable due from related parties are as follows:
<TABLE>
<CAPTION>
November 30, February 28,
1995 1995
------------- ------------
<S> <C> <C>
Unsecured promissory note receivable due from a
director and former Chairman of the Board, bearing
interest at 8% per annum and due on demand $ 199,401 $200,000
Unsecured promissory notes receivable due from a
shareholder, bearing interest at 8% per annum and
due on demand. - 424,691
Accrued interest - 38,894
Reserve for potential uncollectability (170,000) -
--------- ------------
$ 29,401 $663,585
========= ============
</TABLE>
During July 1995, the Company received payments totaling $ 466,130 in full
repayment of promissory notes due from a shareholder arising primarily from the
exercise of previously issued warrants for the purchase of 419,691 shares at
$ 1.00 per share on June 28, 1994.
8
<PAGE>
AURTEX, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
November 30, 1995
NOTE 3: NOTES RECEIVABLE - RELATED PARTIES (CONTINUED)
Effective July 15, 1995, the Company began deducting amounts from a director's
(former officer and Chairman of the Board) salary as repayments of the note. As
of November 30, 1995, the Company has deducted a total of $ 21,465 and applied
this amount against the outstanding accrued interest. In August 1995, the
Company established a reserve for potential uncollectability of this unsecured
promissory note for $ 170,000. This reserve represents the amount due under
this note in excess of this individual's prior annual net salary, and was
established due to his inability to either repay the loan or provide adequate
collateral and the Company's estimate of the risk of repayment.
On November 22, 1995, this individual stepped down as an officer and Chairman of
the Board of Directors and continues to serve the Company as an outside
director. Effective that date, this individual stopped receiving a salary from
the Company and began receiving an outside directors fee of $ 2,000 per month.
The Company will offset this amount against the receivable so long as the
receivable has not been repaid.
NOTE 4: NOTE RECEIVABLE
At November 30, 1995, the Company had an unsecured promissory note receivable
for $ 125,000 due from Combined Metals Reduction Company, a privately held
mining company. This note is due on 30 days demand and bears interest at 10%.
On October 12, 1995, the Company issued demand for repayment of this note.
NOTE 5: STOCKHOLDERS' EQUITY
COMMON STOCK
- ------------
BAGA AKTIENGESELLSCHAFT ISSUANCE
On July 5, 1995, the Company entered into an equity financing agreement with
BAGA Aktiengesellschaft (a shareholder of the Company), where BAGA will provide
up to $ 14,000,000, on a best efforts basis, to the Company over a two year
period. BAGA will provide this equity financing through the purchase of
unregistered common stock, issued pursuant to Regulation S under the Securities
Act of 1933, in several tranches at terms and under conditions set by the
Company. The share price of each tranche will be discounted, up to 30%, off the
bid price of the Company's common stock when the terms of each individual
financing are agreed to.
9
<PAGE>
AURTEX, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
November 30, 1995
NOTE 5: STOCKHOLDERS' EQUITY (CONTINUED)
On August 1, 1995, as a part of this financing, BAGA received up-front
renumeration of 3,000,000 shares of the Company's common stock, issued pursuant
to Regulation S under the Securities Act of 1933 and subject to additional
Company imposed restrictions which were released effective December 31, 1995.
BAGA will also receive a performance incentive of 70,000 warrants for each $
1,000,000 of net proceeds provided to the Company. These warrants will have an
exercise price of $ 0.50 per share and expire three years after the date
issuance.
As of February 15, 1996, no financing has been provided to the Company by BAGA.
RESTRICTED STOCK GRANT
During the six month period ended November 30, 1995, the Company issued
restricted stock to an officer in connection with his employment agreement in
the form of a restricted stock grant of 200,000 shares for the Company's common
stock. Such restricted stock vested 100,000 shares on May 1, 1995, 50,000
shares on July 1, 1995, 50,000 shares on September 30, 1995. This officer
resigned, effective November 1, 1995 and is continuing to work with the Company
under a Consulting Agreement.
WARRANTS
- --------
At November 30, 1995, the Company has reserved 6,500,542 shares of common stock
for issuance upon the exercise of the currently outstanding Warrants, of which
6,300,542 are exercisable at $ 0.30 per share and 200,000, as described
in Note 2, at $ 0.375 per share. The exercise price of warrants for the
purchase of the 6,300,542 shares was repriced by the Board of Directors to $
0.50 in June 1995, and subsequently repriced to $ 0.30 in January 1996. In
addition to repricing the exercise price of the all the outstanding warrants to
$ 0.30, the Board of Directors also extended the expiration date of all the
warrants expiring in January 1996 for an additional one year, until January,
1997.
10
<PAGE>
AURTEX, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
November 30, 1995
NOTE 6: STOCK OPTION PLANS
At November 30, 1995, the Company has options outstanding for the purchase of
1,390,000 shares. Of these options, 590,000 shares were exercisable at $ 0.53
per share and 800,000 shares at $ 0.59 per share.
On June 1, 1995, the Company granted to Mr. Douglas Silver, the Company's new
President and Chief Executive Officer an incentive stock option for the purchase
of 400,000 shares for the Company's common stock at $ 0.53 per share under the
Company's 1994 Stock Plan. Such option vested for the purchase of 150,000
shares on June 1, 1995, with the remaining shares vesting 150,000 shares on the
first anniversary of such grant and 100,000 shares on the second anniversary of
such grant. In connection with Mr. Silver resignation as a director and as
President and Chief Executive Officer on December 1, 1995, the unvested portion
of this option, representing the right to purchase 250,000 shares of common
stock was canceled. The remaining right to purchase 150,000 shares of common
stock expires on February 29, 1996.
In July, the Board of Directors amended the 1994 Stock Plan increasing the
number of shares authorized for issuance under such plan by 3,000,000 to
4,000,000 shares and increased the number of shares for which options can be
granted to any one participant from 150,000 to 450,000 per year. The adoption
of both these amendments to the 1994 Stock Plan was approved by a majority of
the shareholders at the Annual Meeting held on August 7, 1995.
Also on August 7, 1995, the Board of Directors granted options to its two
outside directors for the purchase of 400,000 shares each at an exercise price
of $ 0.59 per share. Such options vested for the purchase of 100,000 shares on
August 7, 1995, with the remaining 300,000 shares vesting 100,000 on each of the
first, second and third anniversary dates of such grant. In January 1996, the
Board of Directors canceled the options issued to the above two outside
directors.
NOTE 7: COMMITMENTS AND CONTINGENCIES
Operating Lease - The Company leases office space in San Francisco and Denver
- ---------------
under noncancellable operating lease agreements.
On October 1, 1995, the Company entered into a noncancellable operating lease
agreement for office space in Denver ending on September 30, 1999. Monthly
lease payments under this agreement begin at $ 4,885 and increase by $ 76 per
month on each anniversary date. The payments under this lease may be escalated
for increases in taxes and operating expenses commencing in 1995. The
Company's San Francisco office space has been subleased on terms identical to
those of the original lease.
11
<PAGE>
ITEM 2. MANAGEMENT'S PLAN OF OPERATIONS
MANAGEMENT AND BOARD OF DIRECTOR CHANGES
- ----------------------------------------
On January 17, 1996, Mr. Theodore J. Georgelas was appointed Chairman of the
Board of Directors and President and CEO of Aurtex, Inc. Mr. Georgelas is
Manager/Member of G & S International L.C. (Developers of commercial, retail,
industrial and residential properties both domestically and internationally).
He serves on the Executive Committee and Board of United Bankshares, Inc. and is
Chairman of the Board of one of its subsidiaries, First Commercial Bank. He is
a cofounder of a cellular telephone business in Delaware and a cofounder of DBE
Software, Inc., a software company marketing a database utility programming
tool.
In connection with the appointment of Mr. Georgelas, Mr. Armin Grabowski, who
was appointed Chairman of the Board of Directors, President and CEO of Aurtex,
Inc. on November 22, 1995 has resigned from the Board of Directors as well as
all of his positions in Aurtex because of increased commitments in Germany.
Mr. Grabowski is the President of BAGA Aktiengesellschaft with whom, as more
fully described below, the Company entered into an agreement with on July 5,
1995 to provide funding to the Company. Mr. Grabowski is also a shareholder in
the company with which the Company announced on November 22, 1995 that it signed
a letter of intent for the acquisition of at least 80% of the company, as more
fully described below. In connection with the appointment of Mr. Grabowski, Mr.
S. Allan Kline stepped down as Chairman of the Board of Directors, and continues
to serve the Company as a director, and Mr. Silver agreed at the request of the
Board of Directors to step down as the Company's Chief Executive Officer and to
remain as President. Mr. Silver resigned as President of Aurtex on December 1,
1995.
On January 15, 1996, Dr. Heinz Schimmelbusch resigned as a director of the
Company. Dr. Schimmelbusch was initially appointed to the Company's Board of
Directors on August 24, 1995.
Mr. James Stanker resigned, effective November 1, 1995, as Vice President,
Secretary and Treasurer. Mr. Stanker is continuing to provide services to the
Company under a consulting agreement.
ACQUISITIONS
- ------------
The Company is in discussions with the following two privately held companies
regarding possible combinations and reorganization of the Company.
The Company entered into a letter of intent and is in discussion to acquire 100%
ownership and control of an operating subsidiary of a privately held
telecommunications company. This operating subsidiary has since 1993 provided,
via an exclusive Bulgarian Government License, international long-distance
service in Bulgaria for hotels, banks and embassies.
The Company is currently in discussions regarding a possible transaction, but
has not entered into a definitive agreement with this company.
12
<PAGE>
On November 22, 1995, the Company announced that it has signed a letter of
intent with a controlling group of shareholders of a private German software
company, one of which was Mr. Armin Grabowski. This group of shareholders were
not able to maintain control and as such the terms and structure of the
transaction could not be finalized and the letter of intent was abandoned. The
Company is continuing discussions with management of this company to determine
if an agreement of some type can still be negotiated. The Company has not
entered into a definitive agreement with either the controlling shareholders or
the software company.
VENCAN GOLD CORPORATION
The Company decided not to proceed with the proposed investment in VenCan Gold
Corporation (MSE:VGC). The decision not to proceed was based on a number of
factors which came to the Company's attention after the Letter of Intent was
signed on September 5, 1995 and directly impeded the Company's ability to
finance the acquisition.
The Montreal Stock Exchange ruled that an investment on the terms contemplated
by the Letter of Intent would not receive the Exchanges' approval. The Exchange
had requested a number of additional guarantees and conditions which the
management of the Company felt were neither reasonable or appropriate for this
type of investment. These additional requirements were not acceptable to the
Company or its financing source, BAGA Aktiengesellschaft.
COMBINED METALS REDUCTION COMPANY
The Company has terminated merger negotiations with Combined Metals Reduction
Company. On October 12, 1995 the Company demanded the repayment of the $
125,000 note receivable it previously advanced to Combined Metals Reduction
Company. Management is currently evaluating its options for collecting this
amount.
FINANCING
- ---------
During February 1996, the Company sold 853,627 shares of Northfield common stock
it received in exchange for its 32% capital interest in Pangold S.A. for $
500,000 to fund its current working capital needs.
As of February 15, 1996, the Company has received no financing, and does not
currently expect any financing to be delivered by BAGA Aktiengesellschaft under
the equity financing agreement the Company entered into with BAGA on July 5,
1995. In this Agreement BAGA committed to provide up to $ 14,000,000, on a best
efforts basis, to the Company over a two year period. BAGA committed to provide
this equity financing through the purchase of unregistered common stock, issued
pursuant to Regulation S under the Securities Act of 1933, in several tranches
at terms and under conditions set by the Company. The share price of each
tranche will be discounted, up to 30%, off the bid price of the Company's common
stock when the terms of each individual financing are agreed to.
On August 1, 1995, as a part of this financing, BAGA received an up-front
renumeration of 3,000,000 shares of the Company's common stock, issued pursuant
to Regulation S under the Securities Act of 1933 and subject to additional
restrictions, all of which expired in December 31,
13
<PAGE>
1995. BAGA will also receive a performance incentive of 70,000 warrants for each
$ 1,000,000 of net proceeds provided to the Company. These warrants will have an
exercise price of $ 0.50 per share and expire three years after the date of
issuance.
Also in July 1995, the Company received full repayment of notes receivable from
a related party and shareholder totaling $ 466,130 as outlined in Note 3 to the
financial statements.
During the next year, the Company intends to raise capital as necessary to fund
acquisitions and for working capital. No assurance can be given that the
necessary financing will be available, or if available, that such financing can
be secured on terms acceptable to the Company. If the Company cannot raise the
necessary financing, the Company may to sell additional shares of Northfield
common stock. If adequate funding is not available to the Company it may be
required to curtail its business activities accordingly, cease operations, seek
out joint venture partners or attempt to be acquired.
GOLD EXPLORATION ACTIVITIES
- ---------------------------
The Company plans to continue to concentrate its gold exploration activities on
its Vienna Property and Ketchum Property.
Vienna Property
- ---------------
Gold exploration activities at the Vienna Property during the 1995 exploration
season included additional geological mapping of the claim area and mechanized
trenching and sampling across areas of known mineralization. Results of the
trenching program confirmed what Aurtex's geologists believe to be the surface
extent of the mineralized zones, provided information about gold bearing rock
types and essential information concerning the location of the core drill
targets planned for the 1996 exploration season. Exploration drilling of the
Vienna property was not be conducted during the 1995 exploration season due to a
shorter than normal exploration season resulting from excessive snowfall and
difficulty locating a qualified drilling contractor prior to the first snowfall.
The Company is negotiating with the property owners to extend the due date of
the $ 250,000 Feasibility Period Payment, currently due on or before April 15,
1996, until after this years exploration season.
Ketchum Property
- ----------------
In August 1995, after careful consideration and review of it's Ketchum claim
block, the Company reduced the number of unpatented claims it holds at its
Ketchum Property by 397 from 656 to 259.
The Company dropped claims on which it believed held little potential of
containing a minable gold deposit and/or was in an environmentally sensitive
area where the Company felt that it would be difficult to obtain the necessary
permits for exploration and development of the property. The reduction in the
number of unpatented claims is also consistent with the Company's cost reduction
plan since there is an annual rental payment requirement of $ 100 per claim on
unpatented claims. The Company does not believe that this reduction in the size
of the claim block has any impact on the capitalized amount recorded in the
financial statements.
14
<PAGE>
During previous exploration seasons evidence of alteration and mineralization in
volcanic rocks was obtained at two localities in the current claim block.
Aurtex's geologists believe that this may give promise of more intense
alterations and mineralization in the underlying sandstones which are more
permeable, and hence are a more favorable host rock for gold. During the 1996
exploration season, the Company plans to continue to perform the necessary tasks
to ensure that future exploration permits are granted and that good title to the
unpatented mining claims is maintained.
THE AURTEX GOLD ASSAY SYSTEM
- ----------------------------
The Company has ceased research and development efforts related to the Gold
Assay System and has closed its facilities in Palo Alto, California and Ketchum,
Idaho. The Company has placed in storage the equipment and supplies necessary
to operate a Gold Assay System, and has sold all the remaining equipment and
supplies.
The Company continues to have the exclusive worldwide right to make, sell and
use the Gold Assay System. This System is based on technology which the Company
believes may provide cost reductions in both the exploration for, and mining of
gold. Patent applications covering the proprietary Aurtex Gold Assay System are
pending with the U.S. Office of Patents and Trademarks and in selected countries
worldwide.
ADMINISTRATION
- --------------
During the second quarter of 1995, the Company embarked on a cost reduction
plan. Management reviewed the structure and operations of the Company, and is
continuing to make cost saving decisions which they feel have no significant
impact on the Company's overall operations. As a part of this plan, the Company
has consolidated and relocated its San Francisco corporate and Princeton geology
offices to Denver, Colorado in July, 1995. The Company subleased the remainder
of its San Francisco office space to a third party. In January 1996, the
Company vacated its Palo Alto lab space.
In connection with the appointment of Mr. Georgelas as the Company's new
President and Chief Executive Officer, the Company plans to move the location of
its corporate office to Northern Virgina and to sublease its office space in
Denver.
15
<PAGE>
PART II
Item 1. Legal Proceedings
In July, 1995, the Company received a complaint for breach of contract
filed in the United States District Court, Northern District of
California alleging failure to reissue stock certificates originally
issued in an offshore financing which were subject to restriction on
transfer under Regulation S of the Securities Act of 1933. The Company
believes that it has available defenses to the plaintiff's claim and
intends to vigorously defend itself in this action.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.1 Severance Agreement with Mr. Douglas Silver
(b) No reports on Form 8-K were filed during the nine months ended
November 30, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Aurtex, Inc.
Date: February 21, 1996 ________________________________
Theodore Georgelas
President and Chief Executive
Officer
16
<PAGE>
December 12, 1995
Douglas B. Silver
3891 East Irwin Place
Littleton, Colorado 80122
Re: Employment Agreement Dated June 1, 1995
Doug:
This will confirm the acceptance of your resignation as an officer and
director of Aurtex, Inc. (the "Company"), effective November 30, 1995. You have
asserted that you are entitled to full severance benefits pursuant to your
Employment Agreement, and have agreed to accept $50,000.00 plus a waiver and
release of any and all claims of the Company against you and Balfour Holdings,
Inc. (which waiver and release is hereby given) in exchange for a waiver of
those severance benefits. Your waiver is contingent on receipt of the entire
amount in cash or certified funds on or before the due date specified in the
following sentence. This payment is to be made to you as soon as possible, but
in any event no later than the first to occur of: (i) the Company's sale of the
any of the 2,080,000 shares of Common Stock of Northfield Minerals, Inc.
evidenced by share certificate no. 02714, (the "Shares") or (ii) May 15, 1996.
This obligations of the Company is to be represented by a promissory note and
secured by a pledge of the Shares (and all additional shares, notes, cash,
securities, dividends, rights, or other property at any time and from time to
time received, receivable or otherwise distributed or distributable in respect
of or in exchange for any or all of such Shares, and all proceeds) which you
will hold until you are paid in full.
To assist the Company in the transition, you have agreed to serve as a paid
consultant to the Company during the month of December 1995. You will be
available for seven (7) working days during the month and have been compensated
$4,000 for those services. Should the Company desire additional services, you
have agreed to provide them at the rate of $100 per hour and agree to use
reasonable efforts to be available as needed on that basis. Of course,
consistent with prior practices, your reasonable expenses incurred in
furtherance of the Company's business will be reimbursed on demand. Balfour
Holdings, Inc. will move out of the space it now occupies with our consent on or
before January 31, 1995 and no rent shall be due or payable as a result of its
occupancy.
Your security interest shall be a first priority perfected security
interest and this letter shall evidence your right to take possession of the
Collateral. The Company agrees that it will execute and deliver any documents
and take such other actions as may be necessary to ensure that your security
interest is and remains a valid enforceable first priority perfected security
interest in the Collateral. In particular, the Company agrees to deliver to you
the opinion of its securities counsel that this pledge has been properly
authorized and is enforceable (as well as such other opinions as are typical in
pledge transactions).
Very Truly Yours,
Aurtex, Inc.
By:
----------------------------------
Armin Grabowski, Chairman and
Chief Executive Officer
Read, understood and agreed to this day of December, 1995
------------
- -------------------------
Douglas B. Silver
as an officer of Balfour Holdings, Inc.
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