UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995, 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: (33-20582)
Equity AU, Inc.
(Exact name of registrant as specified in its charter)
Delaware 75-2276137
(State of Incorporation) (Tax ID No.)
119 Gold Lane, Mena, Arkansas 71953 75252
(Address of principal executive offices) (ZIP code)
Registrant's telephone number, including area code (407) 647-3952
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Class "A" Common Stock
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 Act of 1934 during the past 12 months and (2) has been
subject to such filing requirement for the past 90 days.
YES X NO
Aggregate market value of the voting stock held by non-affiliates
of the registrant as of December 31, 1995, received from Bulletin
Board brokers:
$ 0.00
(no authorized trading)
Shares of common stock outstanding at December 31, 1995:
99,900,000
<PAGE>
PART I.
Item 1. Business.
General.
The Registrant was formed in Delaware on March 5, 1988 under
the name Sherry Lyn Corporation for the purpose of becoming a
"registered public shell" available for combination with a
privately owned company that desired to become publicly held.
Registrant, on a Form S-1, registered shares of its common stock
with the Securities and Exchange Commission and distributed such
shares as a stock dividend to the shareholders of an affiliated
corporation, and thereby become a "registered public shell
corporation". Registrant's then management thereafter sought
combinations with a privately held company. On December 5, 1988
Registrant changed its name to Equity Gold, Inc.
The Registrant, pursuant to a Plan and Agreement of Merger
with Gold Equity, Inc., a Delaware corporation, ("Gold") on
December 13, 1988 exchanged shares of its common stock on a share
for share basis with the shareholders of Gold. The shareholders of
Gold became the majority shareholders of Registrant and elected new
directors who appointed new officers of Registrant. On January 20,
1989 Registrant changed its name to Equity AU, Inc.
Gold Equity, Inc. was formed on November 11, 1988 for the
purpose of exploration and, if warranted, development of certain
mining claims in western Arkansas. Registrant is a development
stage company and there can be no assurance that commercial
production of mineralized rock will be achieved after Registrant
has conducted further geological exploration and feasibility
studies.
Business of Equity AU, Inc.
Registrant is a mining research and exploration company. The
Registrant has been pursuing exploration and potential precious
metal mining development of property located in the Ouachita
Mountains area in Arkansas. Various geological reports, certain
scientific data, and internal testing have indicated an existence
of commercial quantities of precious metal ores; primarily gold; to
the Registrant. The Registrant holds various mining claims located
in Montgomery and Polk Counties, near Mena, Arkansas. These claims
are administered by the Bureau of Land Management or the U. S.
Forest Service. The claims give the Registrant the right, subject
to the obtaining of appropriate approvals of operating plans, to
mine mineral bearing rock from the land covered by the claims. The
Registrant also controls approximately 50 acres of private land in
the same general area, for which several specific portions have
been permitted by the State of Arkansas to allow mining activities.
Registrant owns mining and refining equipment that forms a
pilot milling facility which is located in Polk County near Mena,
Arkansas. The milling facility consists of ball mills, grinders,
flotation cells, storage and mixing tanks, furnaces and related
equipment. Management of Registrant anticipates using the pilot
mill to determine the values of gold and other precious metals, if
any, contained in the rock that will be mined through surface
mining techniques from certain of Registrant's properties (see
Item. 2, Properties).
Management anticipates that exploration mining activities will
include the blasting of the rock with explosives, loading the
broken rock on trucks for transport to the mill for processing. The
rocks will be ground into up to 200 mesh material by the milling
facility. Assays of the material will be conducted to determine
precious metal content, if any, of the rocks and the proper
grinding mesh for larger volume production.
Registrant owns a drilling rig which would enable it to
conduct further exploration of its properties by drilling to obtain
rock samples for analysis by geologists and other experts in the
gold mining industry. Such drilling activity is anticipated to
confirm the precious metal content of the properties, and thereby
enable the Registrant to identify the tonnage of the precious
mineral bearing rock, if any, on the property.
The Registrant has previously obtained working capital through
the formation of various limited partnerships. These entities held
mining assets and agreed to jointly explore and mill ore material
in order to develop a commercial extraction method. These
partnerships have subsequently been dissolved.
The Registrant has maintained the exclusive rights to certain
mining claims and private lands, and has been continuing to
exploring capital funding opportunities; however, in June of 1995,
the Registrant indefinitely suspended development activities and
all other operations in Arkansas.
Government Regulation.
The mining and milling of rock from the property is regulated
by the state of Arkansas through its Department of Pollution
Control and Ecology, and the United States Forest Service or the
Bureau of Land Management.
Registrant on January 27, 1989 appointed Arkansas American
Mining and Exploration, Inc. ("AAME" ), a affiliate of Registrant
as its agent to obtain appropriate approvals of its plan of
operation for the mill and mining activities. In such capacity
AAME filed an application for and received a permit to operate the
pilot mill in its name from the State of Arkansas, Department of
Pollution Control and Ecology. AAME filed a plan of operation in
its name on behalf of Registrant for authority to take a 10,000 ton
bulk sample from certain mining claims of Registrant. Registrant
has received an assignment of all of the mining related assets of
AAME, and the Registrant is now pursuing these activities in its
own name. See: Properties - Proposed Operations.
On July 3, 1989 Registrant was notified by the Mena District
Ranger that the proposed operating plan to take a 10,000 bulk
sample had been substantially modified by that office of the Forest
Service. The modified plan did not include the taking of the bulk
sample, but only permitted the continued exploration of the area to
establish the presence of gold mineralization in commercial
quantities. Management believed that the District Ranger
incorrectly came to that conclusion and on November 13, 1989
appealed the decision to the Deputy Forest Supervisor in Hot
Springs, AR. The documents submitted on appeal included geologic
expert reports by Coastal Ecosystems Management, Fort Worth, TX and
Ridel & Associates, Aurora, CO. These reports confirmed that gold
mineralization was present in the Ouachita Mountains in apparent
commercial quantities. The Forest Supervisor affirmed the District
Ranger's decision. An appeal was taken on November 27, 1989 to the
Forest Service Regional Office in Atlanta, GA. The issues on this
appeal consisted of whether or not the Forest Service had the right
to substantially modify a plan of operation, and if it had such a
right, was the modification by the District Ranger reasonable. On
January 19, 1990 the decision of the Forest Supervisor regarding
the modification of the plan was affirmed.
Provided sufficient working capital, Registrant anticipates
that it may prepare and submit another plan of operations for
mining permission to the Forest Service at some time in the future.
Pending any approval of such plan for public lands, Registrant in
April 1990 began milling operations with rock from private property
owned by certain affiliated investees.
The Company formed AU Mining Partners, Inc., and Metal
Mountain Partners, Inc., as wholly owned subsidiaries, to act as
the General Partner for two private placement limited partnerships
which held mineral rights for 30 acres of private land. The
partnerships have subsequently been dissolved.
In March of 1989, Registrant incorporated "Fifty Six Mountain
Spring Water Company" as a wholly owned subsidiary for the purpose
of pursuing the conduct of business relating to water purification.
The business has never become active, and there are no immediate
plans to invest capital or resources toward this endeavor in the
future.
Gem Stones.
The Registrant, as a part of its plan for financing its
geological and exploration activities in its beginning years,
exchanged 6,750,000 shares of its common stock for gem stones which
are being held for resale. The Registrant owns five (5) topaz gem
stones with an aggregate weight of 439.49 carats, three (3) ruby
gem stones with an aggregate weight of 4.53 carats, three (3)
sapphire gem stones with an aggregate weight of 9.92 carats and
three (3) emerald gem stones with an aggregate weight of 7.08
carats. It is hoped that the proceeds from an eventual sale will
be used by Registrant to finance a portion of its anticipated
activities. Management has for over four years been attempting to
sell the gems but has been unsuccessful, and no assurances can be
given that the gems can be sold to provide any funds to operate
Registrant's business plan. The value of the gems was written down
on the financial statements in 1992 due to management's decision to
save the time and expense of updating appraisals, feeling that
those expenditures would be better used to fund operational
requirements of mining and refining activities, and were then
written down again to salvage value.
Additional Mining Claims.
Registrant previously owned 2,910 mining claims covering
approximately 53,253 acres in the Ouachita National Forest prior to
the implementation of new mining laws which provided for
significant yearly fees ($100 per claim) to hold such claims, with
$200 per claim payable in August of 1993. The Registrant elected
at the time to relinquish rights to all but 80 claims associated
with limited partnership investees where it held ownership
interests, and 75 more filed on behalf of the Registrant itself,
which are believed by the Registrant to be the best of the
remainder.
Royalty.
Registrant in June 1989 acquired a fourteen (14%) royalty
interest in the 80 mining claims involving 13 limited partnerships
in consideration for Registrant's assumption of an affiliate's
obligation to conduct geological and engineering studies on the
mining claims. Management anticipated that its cost to complete
such studies would be approximately $100,000 (3 of the 13
partnerships were scheduled to pay a 15% royalty rather than 14%).
Registrant acquired a 14% gross royalty revenue interest on
private property leases held by 3 other limited partnerships as
additional consideration for completing the geological and
engineering studies for those properties as well.
Subsequently, all of the above limited partnerships have been
dissolved, but the Registrant has continued to pay the holding fees
for the mining claims involved therewith.
Competition.
There are many companies engaging in the exploration and
development of precious metal claims. Most of these entities are
more experienced, more established and financially stronger than
the Registrant. There can be no assurance that the Registrant will
be able to obtain mining permits, successfully locate and mill any
ores, or compete successfully against other companies.
Risk.
The existence of commercial quantities of mineral bearing ore,
and a method for their extraction, is crucial to the Registrant's
realization of any return on investment. Even further, the
Registrant faces other considerable risk factors in achieving its
goals, which include, but are not necessarily limited to, financing
production facilities, availability of skilled personnel, unstable
market prices for its products, and all other risks that can be
customarily associated with the start-up of a new business
enterprise.
Item 2: Properties.
Registrant holds 75 mining claims for itself, and retains an
ownership interest in 80 more, filed on behalf of limited
partnerships or investees, located in Montgomery and Polk Counties,
Arkansas.
Registrant acquired 100% of the mineral rights on 50 acres of
private land. Registrant granted the mineral rights for 40 of
these acres to limited partnerships or investees and retained a 14%
gross royalty interest in such mineral rights; however, the
partnerships have subsequently been dissolved.
Registrant owns a drilling rig and mining, milling, and
refining equipment that forms a pilot milling operation near the
city of Mena, Polk County, Arkansas. The facility consists of
grinding equipment, flotation or leaching tanks, furnaces and other
related equipment.
Registrant also owns laboratory facilities at the same
location in Arkansas which includes certain refining equipment, the
most significant being an electron beam furnace capable of
gasification at high temperature in a vacuum environment.
In late 1994, the Registrant pledged a significant amount of
the production assets listed above, for $152,000 in loans from a
partnership, owned and funded in large part by certain directors of
the Registrant. Said loans are in default and the Registrant is at
risk for these assets to be foreclosed upon.
Registrant anticipates that its geological and exploration
activities will be on claims for which it receives approval of
operating plans on public lands from the U.S. Forest Service, or on
private land with permits issued by the State of Arkansas. These
properties are assessable from both the east and west by Arkansas
State highways that connect with Forest Service Roads. The claims
and property are located in the Ouachita National Forest.
Description of Area:
The Ouachita Mountains, Arkansas have a long history of
mineral exploration, however, only a modest record of mineral
production exists. Prospectors found the first silver-lead-zinc
bearing rock in 1840, the first manganese in 1849, the first
antimony in 1874 and the first barite deposits in 1888. The barite
deposits have been the only mineral that has experienced any
significant mining activity. Prospectors found the first minable
gold and silver in 1888, and five to seven mines were operating in
the Mena area at the turn of the century. Before 1983 most of the
exploration work was designed to locate silver-lead-zinc bearing
rock. During 1983 and 1984, Exxon Minerals, Callahan Mining and
Newmont Mining conducted extensive exploration and drilling
programs in the area, but not necessarily for precious metals.
In 1980, a prior affiliate of the Registrant began prospecting
in the area and claimed to have found high micron gold values in
the basal part of the Arkansas Novaculite formation. Arkansas
American Mining & Exploration, Inc. (AAME), an affiliate of the
Registrant, purchased and staked hundreds of claims on the public
lands and commencing in 1985 began exploring the area.
The property lies in the western part of the Ouachita
Mountains which lie generally east-west from Atoka, OK to Little
Rock, AR. The mountains are long, narrow ridges with steep slopes
with sharp straight crests. Elevations range from 1,100 to 1,900
feet. The region has cool winters and hot summers. Rain fall
averages about 60 inches a year. Water is generally available from
streams and wells. A network of primitive trails, gravel and paved
roads provide assess to all but the steepest slopes and crests.
Power to the area is provided by three electric transmission lines.
Mena, Arkansas, population approximately 6,000 is largest city
in the area. Mena is Polk county's trade center and is served by
a heavy rail line. Fort Smith, AR, population approximately 80,000
is 80 miles to the northwest. Fort Smith is the region's trade
center and provides scheduled air service.
<TABLE>
<CAPTION>
Geology of Area:
The Registrant's hired geologists have reported to it that the
Ouachita mountains were formed through two episodes of thrust
faulting from the south. The faulting forms joints and fractures
which create a lacework pattern in the brittle rocks, in
particular, the novaculite. The first episode of faulting produced
joints, faults and fractures filled primarily with a milky quartz
and the second episode produced a mixture of iron and manganese
oxides.
There are four rock formations in the area that are of
interest to Registrant's management:
Formation Feet Description
<S> <C> <C>
Stanley Shale 1000 Brown sandstone and gray
shale; exposed only in the
valleys between anticlines
Arkansas
Novaculite 680 White Novaculite with gray
chert and black shale in
the middle part; forms the
crests and flanks anticlines
Missouri Mt.
Shale 150 Buff shale, some brown
sandstone; exposed along
axes of breached anticlines
and a few faults
Blaylock
Sandstone 200 Brown sandstone and gray shale
exposed along the axes of
anticlines and a few faults
</TABLE>
Assays of samples from outcrops and drill holes on the
property and the area from 1985 to the present disclose that gold
mineralization is present in five fault zones in the Missouri
Mountain Shale and the Arkansas Novaculite. Gold mineralization
has been found in the reddish-brown mixture of iron, manganese
oxides and iron sulfides that fill the faults, joints and fractures
of the formations. Geologists believe that the gold mineralization
was formed by the low temperature hydrothermal processes. Such
process, it is believed, commences with when iron and manganese
oxides precipitate as a gel ascend through mineralized waters meet
and mix with descending oxygenated waters. Gold, it is believed,
is absorbed by the gel from the ascending waters as it
crystallizes.
Geological and Exploration Activities:
The mining and milling operation of Registrant involves surf
ace mining of mineral bearing rock from portions of the leased 50
acre private site located in the Bee Mountain area. The mining
method anticipated to be used on the site will include the removal
of approximately 20 feet of overburden to expose the anticipated
fracture and quartz zones. The exposed cliff face will be blasted
with dynamite for rock removal. Additional drilling is anticipated
to further define mineral bearing rock at the site.
It is anticipated that the rock will be piled in an area of
the site by a caterpillar type tractor and loaded by a front-end
loader into 10 wheel dump trucks. The trucks will haul the rock
over County Rd. 56 to Hatfield, and then to Hwy 71, approximately
2 miles from the mill entrance. The trucks will travel
approximately 16 miles to the mill site south of Mena.
Through on-going research, the Registrant believes its ores
are complex in nature, consisting of a variety of platinum group
elements. The Registrant's operations manager believed that its
ores required a refining treatment involving high temperatures and
gasification in vacuum, and acquired an electron beam furnace early
in 1993 to provide the technology to accomplish those needs.
Subsequently, in November of 1993, the Registrant hired a new Vice
President of Operations, a metallurgist, to direct its mining
operations. Research conducted since that time by the metallurgist
has indicated that electron beam equipment may not be required to
extract mineral values from the ores, and that certain conventional
refining processes may be more suitable and less expensive to
operate. Development work continued with plans to achieve some
limited mineral production by July of 1994. Additionally, in 1994,
the Registrant has retained the consulting services of a major and
well respected mining school to verify research and assist the
Registrant with the creation of a "flowchart", which will be a
theoretical system providing the most efficient extraction of gold
mineral values, at the lowest production cost. The Registrant had
anticipated receiving this report before the end of 1994, but the
limited availability of capital, and initial test results which
demonstrated significant values, but with a high standard
deviation, eventually forced the abandonment of this plan. Testing
continued through June of 1995, when operations were suspended.
Item 3. Legal Proceedings.
The Registrant is not aware of any pending legal proceedings
which might be considered to be outside the normal or ordinary
course of business, or reportable under Item 103 of Regulation S-K.
Item 4. Submission of Matters to a Vote of Security Holders.
The Registrant has not submitted any matters to a vote of its
security holders, or held a shareholder meeting, since
approximately December of 1994.
<PAGE>
PART II.
<TABLE>
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
a. Market Information.
On July 6, 1989 Registrant's shares of common stock began
trading on NASDAQ under the symbol EQAU. Prior to the filing of
this report, the Registrant was delisted from the Nasdaq Small Cap
Market on June 23, 1994 for failure to file its required reports on
a timely basis as described under Part II, Item 9., and is not
likely to trade again on that market until the Registrant has met
any other required obligations. Subsequently, in late 1994, the
Registrant applied for, and commenced trading again on the OTC
Bulletin Board. However, due to its failure to file timely reports
regarding its finances and operations, the Registrant eventually
ceased authorized public trading of its class A common stock in
1995. Set forth below is the average high and low bid for the
quarters ended March 31, June 30, September 30 and December 31, of
the years 1994 and 1995.
<CAPTION>
Quarters Ended
March 1994 June 1994 Sept 1994 Dec 1994
High Low High Low High Low High Low
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Bid .12 .09 .09 .06 .09 .06 .09 .06
Ask .12 .09 .09 .06 .09 .06 .09 .06
March 1995 June 1995 Sept 1995 Dec 1995
High Low High Low High Low High Low
Bid .00 .00 .00 .00 .00 .00 .00 .00
Ask .00 .00 .00 .00 .00 .00 .00 .00
(No authorized trading)
</TABLE>
The prices stated above are inter-dealer prices without markup, mark-down or
commission and may not necessarily represent
actual transactions.
b. Holders.
At December 31, 1995, the Registrant had approximately 742
shareholders of record of its class A common voting stock.
1. The Registrant is authorized to issue 200,000 shares of
a class "A" non-voting preferred stock, at a par value of $1.00 per
share. Such shares are convertible into new issue class A common
stock at a conversion rate of 5.33 common shares for each preferred
share surrendered. At December 31, 1995, there were 148,000 class
"A" preferred shares issued and outstanding.
2. The Registrant is authorized to issue 300,000 shares of
a class "B" non-voting preferred stock, at a par value of $1.00 per
share. Such shares are convertible into new issue class A common
stock at a conversion rate of 16.0 common shares for each preferred
share surrendered. At December 31, 1995, there were 288,200 class
"B" preferred shares issued and outstanding.
3. The Registrant is authorized to issue 100,000 shares of
a class "C" non-voting preferred stock, at a par value of $1.00 per
share. Such shares are convertible into new issue class A common
stock at a conversion rate of 12.0 common shares for each preferred
share surrendered. At December 31, 1995, there were 10,200 class
"C" preferred shares issued and outstanding.
4. The Registrant is authorized to issue another 1,400,000
shares of non voting preferred stock with a par value of $1.00 per
share. At December 31, 1995, there were no such shares issued or
outstanding.
5. The Registrant is authorized to issue 99,900,000 shares
of voting class "A" common stock, at a par value of $.001 per
share. At December 31, 1995, all of these shares had been issued
and are outstanding, and no provision has been made for any further
conversion of the three classes of preferred stock, or to redeem
any Warrant.
6. The Registrant is authorized to issue 100,000 shares of
voting class "B" common stock, at a par value of $.01 per share.
These shares hold the right to elect a majority of the board of
directors of the Registrant. At December 31, 1995, all of these
shares had been issued and are held by James Arch, Chairman of the
Board.
7. The Registrant has 96,585 shares of its class "A" common
stock held in the name of the Registrant's unqualified employee
benefit plan at December 31, 1995.
c. Dividends.
Registrant has not paid a dividend to the holders of its Class
"A" common stock and does not anticipate paying dividends in the
near future. Class "B" common shares do not hold the right to
receive dividends.
Class "A" Preferred shares receive a 10% dividend each year,
payable in cash or new issue Class "A" common shares, based upon
the par value of those common shares. At December 31, 1995, there
were cumulative dividends payable in the amount of $32,517.
Class "B" Preferred shares receive a 10% cash dividend payable
July 1 of each calendar year. At December 31, 1995, there were
cumulative dividends payable in the amount of $54,200.
Class "C" Preferred shares receive a 10% cash dividend payable
annually. At December 31, 1995, the cumulative amount of dividend
payable thereon these shares was $1,126.
d. Warrants.
On September 10, 1994, the Registrant issued Warrants to
Eastern Global, LLC to purchase 200,000 shares of new issue Class
"A" common stock at an exercise price of $.09375 per share, which
expire September 10, 1996.
<TABLE>
Item 6. Selected Financial Data.
Set forth below is selected financial data of the Registrant
for the past five years. This financial data should be read in
conjunction with the financial statements and related notes
included elsewhere in this report.
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Total Rev: 0 0 104,110 0 316,754
Net Loss: 212,633 3,656,678 2,571,857 4,041,279 258,899
Net/share: ($.00) ($.07) ($.06) ($.10) ($.01)
Working Cap: (261,129) (138,913) 3,169 (246,605) (170,349)
Ttl. Assets: 171,928 149,514 3,540,773 4,392,412 5,080,406
</TABLE>
Item 7. Management's discussion and Analysis of Financial
Condition and Results of Operations.
(1) Liquidity.
December 31, 1995 represented the seventh year end of the
Registrant. The Registrant has funded its operations over time
from fees received from limited partnerships and their limited
partners, loans from officers, directors, and Affiliates, through
paid-in equity capital, and debt. During 1995 the Registrant has
funded its operations primarily through paid-in equity capital, and
that situation has resulted in the board of directors issuing all
of the class "A" common voting shares the Registrant is authorized
to issue. The Registrant's liquidity has become virtually non-existent.
As of December 31, 1995, the Registrant's cash and cash
equivalents totalled $1,672, representing a decrease of $24,510
from the close of the third quarter of the year.
(2) Capital Resources.
(i) Prior capital commitments to the Registrant have not
been met, and the Registrant has no other commitments for
capital resources at this time. Considering the maximum issue
of its class "A" common shares, no other commitments would be
likely to occur. However, as a subsequent event, it was
determined that 9,617,000 of those shares were issued to a
related party with no consideration exchanged, and such shares
will be returned to the Registrant and canceled by an
agreement dated July 3, 1996. This will eventually result in
a new balance of issued and outstanding class A common shares
of 91,123,320, when taking into account 840,183 shares which
have previously been authorized, but had not been able to be
issued.
(ii) It is not likely that the officers and directors of
Registrant can fund the Registrant to any increased extent
than they have already provided.
(iii) Registrant has no lines of credit.
(3) Results of Operations.
In 1991 and 1992, the Registrant significantly expanded its
activity at its milling site near Mena, Arkansas. The Registrant
believed, due to statements from its operations managers and other
third parties, that they had developed a reliable process to
extract precious metals from the ore taken from properties owned or
administered by the Registrant. The Registrant entered into
agreements with AT&T Nassau Metals to be its refiner, and agreed to
deliver certain quantities of gold bearing mineral concentrates in
several forms to AT&T Nassau. After selling an initial shipment to
its refiner, the Registrant's technical staff was not able to
continue deliveries, citing interference with other platinum group
metals locked in complex molecular clusters.
In early 1993, upon the investigation and advise of its
technical staff, the Registrant believed that electron beam
technology, using gasification at high temperature in a vacuum, was
required to fracture the molecular clusters, thereby permitting the
gold and other precious metal recovery. In April 1993, the
Registrant purchased and commenced installation of electron beam
equipment, completing work and obtaining an operating permit from
the Arkansas Department of Pollution Control and Ecology in
September 1993. Initial testing of the equipment provided variable
results, with no revenues guaranteed from the continued infusion of
capital for production modifications.
Shortly thereafter, the Registrant accepted a letter of
resignation from its technical manager, and then hired Mr. Natvar
Patel, an experienced metallurgist directed to implement mining
production, under any method, as quickly as possible.
After considerable testing and evaluation by the new
metallurgist, it was determined that it was likely that the subject
ores could be processed commercially without required use of the
electron beam equipment. The Registrant has yet to fully
investigate the potential of this equipment to enhance mineral
values extracted through more conventional means, and while feeling
that it may yet hold promise, has decided not to invest an
additional capital in the electron beam equipment at this time, for
further modifications which would be required for proper
evaluations.
Instead, management made the decision to pursue two directions
more focused on earning production revenue, and adding value to the
assets. Since the second half of 1994, the Registrant had sought
to develop repeatable and consistent (low standard deviation) pilot
production of gold values through extraction methods which have
proved reasonably reliable through extensive testing, supported by
numerous third party independent assays. At the same time, the
Registrant employed a consultant from a University mining school of
the highest reputation, to investigate and help the Registrant
develop a "flowchart", which would be a system designed to be the
most effective extraction method for gold values, at the most
reasonable cost, providing the most consistent results. That goal
has not been accomplished, due in large part, to the inability of
the Registrant to fund the expenses involved. The Registrant had
tested numerous pilot batches beginning in July of 1994, based on
internal research, and had continued working toward reducing a high
standard deviation in variance of test results down to acceptable
levels for the eventual certification of a flowchart. Although the
test results varied greatly, management considered that it would be
satisfied if even the lower results could be relied upon in a large
scale operation.
Sizable variability in the test results continued in 1995,
until all research activity and development work in Arkansas was
suspended in mid June of 1995. The Registrant is not able to
determine when, or if, it may be able to re-start these operations.
The Registrant has filed this Form 10K report later than the
required filing date, and at the same time as other reports
encompassing a period of time extending from the Form 10Q report
for the quarter ended March 31, 1995, through the Form 10Q report
for the quarter ended June 30, 1996. This report should be read in
conjunction with those prior and following reports.
Item 8. Financial Statements and Supplementary Data.
Consolidated financial statements of the Registrant and
the report of the Independent Certified Public Accountant
are attached hereto numbered pages F1 to F17.
Item 9. Changes in and Disagreements on Accounting and Financial
Disclosure.
None.
<PAGE>
PART III.
Item 10. Directors and Executive Officers of Registrant.
The Registrant experienced significant changes in its
management during 1995.
During late 1994 and in early 1995, Chairman James Arch had
been negotiating with various parties to attract working capital
for the Registrant. Early in February of 1995, Mr. Arch reached an
agreement with Stephen Guarino for Mr. Guarino to inject $200,000
of needed funds. Mr. Arch agreed to give Mr. Guarino complete
administrative and financial control of the Registrant. Kingman L.
Hitz, the Registrant's then President, acting Secretary, and a
director, resigned all his positions except director in February,
and the Registrant's headquarters were moved and consolidated with
the facilities in Mena, Arkansas. Natvar Patel, formerly Vice
President of Operations, was appointed as President and acting
Secretary, and served until late May of 1995, when Mr. Guarino was
appointed as President and as a director. Also in late May,
William Hanlon, and Roger Tichenor were additionally appointed as
directors, and the resignation of Gail Holderman as a director was
accepted. The new board of directors attempted to exclude Mr. Hitz
from the board, but it was subsequently determined that because Mr.
Hitz had never been noticed regarding any meetings, or been given
the opportunity to participate, that such action was not in
accordance with the Registrant's by-laws. Mr. Hitz, at the time
unaware of these events, resigned from the board in July 1995.
Natvar Patel, acting Secretary at the time, was released from
his employment with the Registrant in June of 1995, when operations
in Arkansas were suspended.
The following persons are serving as directors and officers of
Registrant as of December 31, 1995:
James Arch, (74) is Chairman of the Board of Directors since June
of 1994. Mr. Arch has a respected 40 year business background as
an educator and public speaker. He currently conducts seminars for
banks, corporations, associations, and conventions to motivate,
develop and train people to achieve greater business success. His
long list of clients has included 20 years with the Professional
Golfers Association and 12 years for the Professional Bowlers
Association.
Mr. Arch serves on the boards of several cellular and wireless
cable companies, and is President of his own corporation marketing
attitude development programs designed to help business and
individuals achieve greater growth and financial success.
Mr. Arch was born and educated in England, is a graduate of
NorthWestern College, and has served as an officer in the British
Merchant Navy and the Royal Air Force. He became an American
citizen in 1954.
Bruce R. Beckman, (45) is a member of the Equity AU, Inc. board of
directors since 1990. He is Superintendent of Operations for the
LaCygne Station of Kansas City Power & Light.
He has held various engineering and management positions with
Kansas City Power & Light since 1974. He has served as Plant
Maintenance Engineer, Air Quality Control Engineer, Superintendent
of Reliability Problems and as Superintendent of Central
Maintenance.
Mr. Beckman is a member of the Association of Professional
Engineers and is certified as a chief engineer by the National
Institute for Uniform Licensing of Power Engineers. He is also a
commissioned examining engineer, and a technical instructor.
He graduated with a Bachelor of Science degree in mechanical
engineering from Southern Illinois University in 1974, where he
specialized in power plant theory and design. Mr. Beckman
graduated with a Masters of Business Administration degree from
Avila College in Kansas City, Missouri.
Stephen Guarino, (46) is President of Equity AU, Inc. and a
director since May of 1995. Mr. Guarino advised the Registrant
that he owns and operates several marketing and direct mail
companies, possesses 20 years of experience in management, and is
a 1972 graduate of the University of Pennsylvania. He has declined
to furnish the Registrant with any further information regarding
specific names or dates relative to his background or
qualifications.
William Hanlon, (47) is a director of Equity AU, Inc. since May of
1995. He is presently Vice President and Controller of Xeno
Technix, Inc.
From 1989 to 1993 he was Chief Financial Officer for JJH, Inc.
of Virginia, and from 1984 to 1989 was self employed in a public
accounting practice. Previously, from 1980 to 1984, he was
Controller of Sun Information Services (now trading as SunGard Data
Systems, Inc.), a subsidiary of Sun Company, Inc. Prior to that,
he held positions with Sybron Corporation and the J.J. Henry Co.,
Inc.
Mr. Hanlon is a Certified Public Accountant, and a graduate of
the Wharton School, University of Pennsylvania, with a BBA degree
in Accounting and a MS degree in Management.
Roger Tichenor, (43) is a director of Equity AU, Inc. since May of
1995. Mr. Tichenor is President of Phoenix Capital, a consulting
company that assists small companies that seek public trading, in
various advisory capacities.
From 1992 to 1995, Mr. Tichenor was the Branch Manager of
Republic Securities, a Chicago based stock and commodity firm.
Prior to that, from 1987 to 1992, Mr. Tichenor worked at various
brokerage firms as a stock and commodities broker.
<TABLE>
Item 11.
Executive Compensation.
The following table represents the compensation of the Chief
Executive Officer and any other officer employed during 1995, for
1994 and 1995. The Registrant has omitted any performance graph of
the total return to shareholders since the Registrant began public
trading on the Nasdaq Stock Exchange in July of 1989, since the
Registrant is in the development stage, no returns have been
generated, and with operations suspended is not in competition with
other companies:
<CAPTION>
Other All
Name and Annual Annual Other
Position: Year Salary($) Compensation Compensation
<S> <C> <C> <C> <C>
Stephen Guarino 1995 $ 0 $ 0 $ 0
Kingman L. Hitz 1995 $ 0 $ 0 $ 0
President /1 1994 $ 52,000 $ 4,000 $ 0
Director
Natvar C. Patel 1995 $ 33,750 $ 0 $ 0
VP of Operations 1994 $ 70,000 $ 3,000 $ 0
President /2
</TABLE>
/1 Mr. Hitz resigned in February of 1995 but never was paid any
compensation for his services for 1995.
/2 Mr. Patel, Vice President of Operations, and some acting
President for a period in 1995, was let go when operations were
suspended in Arkansas in June of 1995. Mr. Patel, is an affiliate
of Eastern Global, LLC, a company that holds warrants to purchase
200,000 class "A" common shares of the Registrant for the price of
$.09375, that expire September 10, 1996.
Other than as stated above, there are no option exercises,
long-term incentive plans, pension plan remunerations, or option
repricing during the 1995 fiscal year of the Registrant.
Relationship of Compensation to Performance
The Board of Directors of Equity AU, Inc.
It is the current policy of the Corporation that the existing
overall annualized compensation levels of the Chief Executive
Officer (CEO) or any other employee shall not be increased until
the Corporation has sold and received payment for its first 250
ounces of precious metal production, and at that time the maximum
wage increase shall be 15%. Any cash compensation to either the
CEO or Vice President of Operations in excess of their current
annualized amounts is tied strictly to performance in meeting
precious metal production levels based upon 100 ounces, 250 ounces,
and achieving the Corporation's first quarter of profitability.
Awards of stock to the CEO, Vice President of Operations, and
employees are also tied to production performance levels.
James Arch Stephen Guarino Roger Tichenor
Bruce Beckman William Hanlon
<TABLE>
Item 12.
Security Ownership of Management and Others.
During 1995, the board of directors issued all of the
remaining authorized class "A" common voting shares of the
Registrant.
Set forth below is the direct ownership of the Registrant's
class "A" and class "B" common voting stock by management and any
owner of 5% or more of the common stock of Registrant as of
December 31, 1995:
<CAPTION>
CLASS B - COMMON STOCK
Title of Name and address Amount of shares % of class
of owner owned
<S> <C> <C> <C>
Common Calistro and Peters 100,000 100.0
James Arch, Manager
P.O. Box 940037
Maitland, FL 32794
Common All Officers and Directors 100,000 100.0
as a Group
</TABLE>
<TABLE>
<CAPTION>
CLASS A - COMMON STOCK
Title of: Name and address Amount of shares % of class
of owner owned 1/ 4/5
<S> <C> <C> <C>
Common Stephen Guarino 19,078,885 19.0
Director, President & CEO
1502 Route 38
Cherry Hill, NJ 08002
Common William Hanlon 500,000 .5
Director
3412 Progress Dr.
Ben Salem, PA 19020
Common Bruce R. Beckman 100,010 0.1
Director
16574 Glenwood
Stillwell KS 66085
Common Roger Tichenor 2,000,000 /2 2.0
Director
73 S. Palm Ave., Ste 223
Sarasota, FL 34326
Common Phoenix Capital 4,000,000 /2 4.0
73 S. Palm Ave., Ste 223
Sarasota, FL 34326
Common Calistro and Peters 6,603,700 /3 6.6
James Arch, Manager
P.O. Box 940037
Maitland, FL 32794
Common James Arch 9,639,169 /3 9.6
Director and Chairman of Board
P.O. Box 940037
Maitland, FL 32794
Common Arch Family Ltd. Partnership 311,429 /3 .3
P.O. Box 940037
Maitland, FL 32794
Common James Arch Trust dtd. 7/31/91 339,010 /3 .3
P.O. Box 940037
Maitland, FL 32794
Common All Officers, Directors 42,572,203 43.0
and Affiliates as a Group
</TABLE>
1/ Giving effect to a 2 for 3 reverse split of the shares of
the Company authorized by the Board of Directors on February 14,
1989.
2/ Mr. Tichenor holds an ownership position with regards to
Phoenix Capital.
3/ Entities either owned or controlled by Mr. Arch.
4/ According to a report from the Registrant's transfer
agent, there are now approximately 99,900,000 class A common shares
issued and outstanding as of the date of this report.
5/ Percentage ownership is approximate to the nearest
one-tenth of one percent.
Item 13. Certain Relationships and Related Transactions.
Commencing in late 1994, the Registrant entered into a loan
agreement with Arkansas Mineral Partners, Ltd., a newly formed
general partnership, to borrow funds to meet its financial
obligations. The Registrant secured loans in the amount of
$152,000, pledging its lab facility, drilling rig, and certain
other pieces of major equipment as collateral. Directors James
Arch ($57,000), and Stephen Guarino ($25,000), made material
contributions to that lending partnership. Mr. Guarino made his
investment prior to becoming an officer and director of the
Registrant. Mr. Arch has subsequently purchased all of the
ownership interest in the Arkansas Mineral Partners, Ltd.
partnership, including the investment of Mr. Guarino. During 1995,
The Registrant has been in default of its payment terms to the
partnership, and the pledged assets are at risk of foreclosure at
any time.
<PAGE>
PART IV.
Item 14. Exhibits, Financial Statements and Reports on Form 8-K.
(a) The following documents are filed as a part of this report:
Included in Part II, Item 8 of this report:
1.,2., and 3.:
Accountant's Report
Consolidated Balance Sheet -- December 31, 1995 and 1994
Consolidated Statement of Operations for the Years Ended December
31, 1995 and 1994
Consolidated Statement of Shareholders Equity for the Years Ended
December 31, 1995 and 1994
Consolidated Statement of Cash Flows for Years Ended December 31,
1995 and 1994
Notes to the Consolidated Financial Statements for the Years Ended
December 31, 1995 and 1994
(b) The Registrant has filed the following Form 8 reports dated
during the last quarter of 1995:
(1) Form 8K dated October 6, 1995, to report a change in
control of the Registrant.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto
duly authorized.
EQUITY AU, INC.
Registrant
James Arch
James Arch, Chairman
Date: August 12, 1996
Pursuant to the requirements to the Securities and Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of Registrant and in the capacities and on the
dates indicated.
Signature Title Date
James Arch Director August 12, 1996
James Arch
Bruce Beckman Director August 12, 1996
Bruce Beckman
