U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
[x] Annual report under Section 13 or 15 (d) of the Securities Exchange Act
of 1934 (No fee required, effective October 7, 1996.)
For the fiscal year ended December 31, 1996
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 (No fee required)
For the transition period from _____________ to _____________ .
Commission file number 33-20582
Equity AU, Inc.
(Name of Small Business Issuer in Its Charter)
Delaware 75-2276137
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
119 Gold Lane, Mena, Arkansas 71953
(Address of Principal Executive Offices) (Zip Code)
(407) 647-3952
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Class A Common Stock, par value $.001 per share
(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [ ] No [ x ]
<PAGE>
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for the year ended December 31, 1996 were $413.
The aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of August 25, 1997 was $594,893.
The number of shares outstanding of the issuer's common equity, as of
August 25, 1997 was 99,263,000 shares.
Transitional Small Business Disclosure Format (check one):Yes [ ] No[x]
<PAGE>
PART I
Item 1. Business.
GENERAL
Equity AU, Inc. ("Equity", or "the Company") is a Delaware corporation.
Equity has been engaged in the exploration and mining of certain minerals in
Polk County, near Mena, Arkansas. Equity's principal corporate offices are
located at 119 Gold Lane, Mena, Arkansas, 71953 and its telephone number is
(407) 647-3952. Equity ceased all mining activity in December 1996.
HISTORY AND CURRENT ACTIVITY
In February of 1995, the Chairman of the Company, James Arch ("Mr.
Arch") reached an agreement with a shareholder and investor , Stephen Guarino,
to invest significant equity capital into the Company. Mr. Arch thereafter
granted full management and financial control to Mr. Guarino. The then current
President, Kingman L Hitz resigned, and all operations were moved to Mena,
Arkansas. Director Gail W. Holderman resigned shortly thereafter. Mr. Guarino
was appointed with the official title of President in May of 1995, and was also
appointed as a Director , along with William Hanlon and Roger Tichenor. Kingman
Hitz had not received notice of any meetings, and subsequently resigned as a
director in July of 1995. In early 1996, a partnership controlled by Mr. Arch
foreclosed on the Company's property and equipment which had been pledged for
loans received from the partnership.
In June of 1996, Mr. Guarino, Mr. Hanlon, and Mr. Tichenor resigned all
of their positions with the Company, and Mr. Arch entered into agreements with
Mr. Guarino and Mr. Tichenor to purchase all of the Class Common shares which
had been previously issued to them. Also in June 1996, Charles Jones was
appointed as the Company's new President.
Mr. Arch elected to resume operations at Mena, Arkansas on June1, 1996.
Mr. Arch provided the property and equipment for the start-up and the Company
borrowed $57,500 from private investors on convertible notes, at a 10% interest
rate to fund the operations. At December 31, 1996 the notes carried accrued
interest of $3,403. B&D Construction was contracted to get the mill into
operation, mill the ore and process the ore to a finished gold product, ready
for sale.
Ore production was commenced in early September, 1996. The first 5 tons
of ore production were lost due to power failures and heavy rains. Then, 2
additional tons of ore were processed yielding 1.25 oz. of gold which was sold
to the Dallas Gold Exchange for $413. Management determined that the operation
could not be profitable based on the limitations of the Company's current
equipment. It was determined by management to use any of the Company's remaining
funds to look for additional sources of funding to purchase the necessary
equipment to produce additional ore. Management has been unable to identify
adequate, additional funding and can make no assurances as to its ability to
find adequate funding in the future.
On December 12, 1996 the Company convened the annual shareholders
meeting. James Arch, Charles Jones and Bruce Beckman were elected by a majority
of shareholders to the Board of Directors. Additionally, a one hundred (100)
down to one (1) "reverse split" of the Company's outstanding Class A Common
shares was approved. Management is waiting for the certainty of ongoing
operations before effecting the reverse split. There can be no assurance as to
when management will determine the time to be appropriate to effect the reverse.
<PAGE>
On August 4, 1997 Charles Jones resigned as President and Director of
the Company. He will assist with the Company until a new President can be
appointed.
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 Company. There can be no assurance
that the Company will be able to continue mining successfully, locate and mill
any ores, or compete successfully against other companies.
The existence of commercial quantities of mineral bearing ore, and a
method for their extraction, is crucial to the Company's realization of any
return on investment. Even further, the Company 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.
The Company's executive offices are located at 1190 Gold Lane, Mena,
Arkansas 71953, in a building that was used as a laboratory for mineral analysis
and for office space. The building is owned by a partnership controlled by Mr.
Arch. Since the Company has ceased operations for the time being, business
matters are being handled by both Mr. Arch and by the past President, Charles
Jones at their personal residences.
During 1995, the Company owned 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 consisted of grinding equipment, flotation
or leaching tanks, furnaces and other related equipment. The Company also owned
a building on the site which housed a laboratory with certain testing and
refining equipment. These assets had been pledged for loans made to the Company
by a partnership, owned and funded in large part by the Chairman of the Company.
Early in 1996 the partnership foreclosed on the property and equipment and
forgave the loans and accrued interest.
Item 3. Legal Proceedings.
In July of 1996, the Company consented to a judgment obtained by the
United States Securities and Exchange Commission which required the Company to
bring its delinquent reporting current by August 13, 1996, which was complied
with, and further permanently enjoined the Company from any failure to file
required reports in a timely manner in the future. This report has been filed
subsequent to the filing deadline and the subsequent quarterly reports have yet
to be filed.
Item 4. Submission of Matters to a Vote of Security Holders.
On December 12, 1996 the Company held its annual meeting of
shareholders. Mr. James Arch, Mr. Charles Jones and Mr. Bruce Beckman were
elected directors of the Company by a vote of 76,187,483 shares for, 1,444,511
shares against, and 12,651,006 no vote shares. Additionally, the Company
approved a one hundred to one (100:1) reverse split of its outstanding Class A
Common Stock by a vote of 76,187,483 shares for, 1,444,511 shares against, and
12,651,006 no vote shares. Management is waiting for the certainty of ongoing
operations before effecting the reverse split. There can be no assurance as to
when management will determine the time to be appropriate to effect the reverse
split.
<PAGE>
PART II
Item 5. Market for Common Equity & Related Stockholder Matters.
The Company's common stock is currently traded in the over-the-counter
market on the Electronic Bulletin Board under the symbol EQAU.
The following table represents the range of high and low bid quotations
for the calendar quarters indicated since the first quarter of 1995.
Calendar Quarters High Bid Low Bid
1995
1st Quarter .000 .000
2nd Quarter .000 .000
3rd Quarter .000 .000
4th Quarter .000 .000
1996
1st Quarter .000 .000
2nd Quarter .000 .000
3rd Quarter .005 .001
4th Quarter .005 .001
1997
1st Quarter .030 .010
2nd Quarter .010 .008
The foregoing quotations were obtained from broker-dealers and market
makers who provide daily reports of the NASD Electronic Bulletin Board. The
above quotes reflect inter-dealer prices without retail mark-up, mark-down, or
commissions and may not necessarily represent actual transactions.
As of August 26, 1997, the Company had 99,263,000 shares of its common
stock issued and outstanding, and there were 742 shareholders of record, which
figures do not take into consideration those shareholders whose certificates are
held in the name of broker-dealers.
As of the date hereof, the Company has not paid or declared any cash
dividends. The Company can give no assurance that it will generate future
earnings from which cash dividends can be paid. Future payment of dividends by
the Company, if any, is at the discretion of the Board of Directors and will
depend, among other criteria, upon the Company's earnings, capital requirements,
and its financial condition as well as other relative factors. Management has
followed the policy of retaining any and all earnings to finance the development
of its business. Such a policy is likely to be maintained as long as necessary
to provide working capital for the Company's operations.
RECENT SALES OF UNREGISTERED SECURITIES
On June 6, 1997 the Company issued 8,900,000 restricted shares to
General Enterprises and Trading Company (Isle of Man) Ltd. for the promise to
loan the Company $100,000 and to pledge to the Company a Capital Asset
Certificate for $5,000,000. These shares were exempt from registration pursuant
to Section 4(2) of the Securities Act of 1933.
<PAGE>
Item 6. Management's Discussion & Analysis of Financial Condition & Results of
Operations.
Statements made or incorporated in this report include a number of
forward-looking statements within the meaning of Section 27(a) of the Securities
Act of 1933 and Section 21(e) of the Securities Exchange Act of 1934.
Forward-looking statements include, without limitation, statements containing
the words "anticipates", "believes", "expects", "intends", "future", and words
of similar import which express management's belief, expectations or intentions
regarding the Company's future performance or future events or trends. Reliance
should not be place on forward-looking statements because they involve known and
unknown risks, uncertainties and other factors, which may cause actual results,
performance or achievements of the Company to differ materially from anticipated
future results, performance or achievements expressly or implied by such
forward-looking statements. In addition, the Company undertakes no obligation to
publicly update or revise any forward-looking statement, whether as a result of
new information, future events or otherwise.
RESULTS OF OPERATIONS
For the Year Ended December 31, 1996 compared to the Year Ended December 31,
1995.
During the year ended December 31, 1996 the Company briefly resumed
mining operations which had been terminated in 1994. Operations yielded $413 of
gold sales to the Dallas Gold Exchange. The cost of contract labor to produce
the gold was $15,569, resulting in a gross profit of ($15,156). During 1995
there were no mining operations.
General and administrative expenses increased $96,770, 51%, to $287,836
during fiscal 1996 from $191,066 during fiscal 1995. These expenses primarily
include professional fees, salary to the Company's president and accrued
dividend expense.
The Company had other income of $99,968 during fiscal 1996 compared
with other expense of ($19,048) during fiscal 1995. The difference is due
primarily to the gain recognized when notes payable were called due and the
pledged assets were foreclosed on. The assets had previously been written down
to salvage value during prior years.
The Company experienced a net loss of $203,024 in fiscal 1996 compared
with a net loss of $212,633 in fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had total assets of $154 and total
stockholders deficit of $(335,967) compared with total assets of $171,928 and
total stockholders deficit of $(132,943) at December 31, 1995. The decrease in
total assets of $171,774, 99% is due to the write off of the Company's property
and equipment upon foreclosure by a note holder for which the property and
equipment had been pledged. Total liabilities at December 31, 1996 increased
$31,250, 10%, from $304,871 to $336,121. The increase is due primarily to the
accrual for dividends payable of $114,766.
As of December 31, 1996, the Company had a cash balance of $154
compared to a cash balance of $12,926 as of December 31, 1995. The Company has
historically satisfied its cash needs through borrowings. Management can give no
assurance that the Company will be able to obtain financing on acceptable terms
or that such financing if available, will be sufficient to fund the Company's
operations.
<PAGE>
Item 7. Financial Statements and Supplementary Data.
The Following financial statements and documents are filed herewith on
the pages listed below, as part of Item 7 of this report. The December 31, 1995
balances were audited while the December 31, 1996 balances have not been audited
as management has deemed the Company inactive, as that term is defined in Rule
3-11 of Regulation S-X.
Document .........................................................Page
Balance Sheet............................................F-1
Statement of Operations..................................F-2
Statement of Stockholder's Equity........................F-3,4
Statement of Cash Flows..................................F-5
Notes to Financial Statements............................F-6 to 10
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Management deems the Company and "inactive entity" as that term is
understand under Rule 3-11 of Regulation S-X. The Registrant will therefore file
unaudited financial statements for reports required for fiscal year 1996, for
purposes of reports required under the Securities Exchange Act of 1934. The
Company will not be retaining or engaging the services and has dismissed the
firm of J.S. Osborn, P.C., Certified Public Accountants, as independent
accountants for the Company. Management has not determined when the Company will
engage a new independent accountant. (Refer to the Company's Form 8-K filed with
the Commission on March 22, 1997.)
PART III
Item 10. Directors, Executive Officers, Promoters and Control Persons
All directors of the Company serve a term of one (1) year until the next
Annual Shareholders Meeting or until their death, resignation, retirement,
removal, disqualification, or until their successors have been elected and
qualified. Vacancies in the existing board are to be filled by a majority vote
of the remaining directors. Officers of the Company serve at the will of the
Board of Directors.
The following table sets forth the name and office held by each director
and officer of the Company, followed by a brief resume of each individual.
NAME AGE POSITION HELD
James Arch 75 President, Chief Executive Officer,
Secretary, Treasurer and Director
Bruce R. Beckman 46 Director
JAMES ARCH, President, Chief Executive Officer, Secretary, Treasurer
and director of the Company. Mr. Arch has a respected 40 year business
background as an educator and public speaker. He currently conducts seminars for
<PAGE>
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, director of the Company since 1990, 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. Mr. Beckman 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.
Item 10. Executive Compensation.
Executive and Director Compensation
The Company does not have a bonus, profit sharing, or deferred
compensation plan for the benefit of its employees, officers or directors.
The following table sets forth a summary of cash and non-cash
compensation for each of the last three fiscal periods ended March 31, 1997,
1996, and 1995, with respect to the Company's Chief Executive Officer. No
executive officer of the Company has earned a salary greater than $100,000
annually for any of the periods depicted.
Summary Compensation Table
Name & Principal Position Year Salary
- ------------------------- ---- ------
James Arch 1997 $-0-
President, CEO, Secretary, 1996 $-0-
Treasurer 1995 $-0-
(from August 1997 to present)
Charles Jones 1997 $42,000
President & CEO 1996 $42,000
(from June 1996 to August 1997) 1995 $-0-
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information, to the best knowledge of the
Company, as of August 26, 1997, with respect to the beneficial ownership of the
Company's Common Stock by (i) each person known by the Company to be the
beneficial owner of more than 5% of the Company's outstanding Common Stock; (ii)
each director and officer; and (iii) all current directors and executive
officers as a group.
<PAGE>
NAME AND ADDRESS OF NUMBER OF PERCENT
BENEFICIAL OWNER SHARES OWNED OF CLASS
CLASS B COMMON
Calistro and Peters 100,000 100.0%
James Arch, Manger
P.O. Box 940037
Maitland, FL 32794
All Officers and Directors as a Group 100,000 100.0%
CLASS A COMMON
Bruce R. Beckman 100,010 0.10%
16574 Glenwood
Stillwell, KS 66085
Charles Jones 333,0001 0.34%
P.O. Box 1201
Lake Dallas, TX 75065
Calistro and Peters 6,603,700 6.65%
James Arch, Manager
P.O. Box 940037
Maitland, FL 32794
James Arch 25,101,054 25.29%
P.O. Box 940037
Maitland, FL 32794
Arch Family Ltd. Partnership 811,429 0.82%
P.O. Box 940037
Maitland, FL 32794
James Arch Trust dtd. 7/31/91 547,507 0.55%
All Officers and Directors as a
Group (2 persons) 33,163,700 33.41%
Item 12. Certain Relationships and Related Transactions.
In early 1996, a partnership controlled by Mr. Arch foreclosed on the
Company's property and equipment which had been pledged for loans received from
the partnership.
During the year ended December 31, 1996, Mr. Arch loaned the Company
$41,877 for operating capital at 10% interest.
Item 13. Exhibits and Reports on Form 8-K.
(a) No exhibits have been filed with this report.
(b) The Company filed a Form 8-K with the Commission on March 22, 1997 setting
forth the reasons for dismissing the Company's independent accountant.
- --------
1 Although Mr. Jones is not an officer of the Company as of the date of this
report he has been included in the table for informational purposes.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
EQUITY AU, INC.
(Registrant)
BY: /s/ James Arch
--------------------------
James Arch, President
Dated: September 5, 1997
<PAGE>
<TABLE>
<CAPTION>
EQUITY AU, INC.
BALANCE SHEET
December 31, 1996
ASSETS
December 31,
1996
CURRENT ASSETS (Unaudited)
<S> <C>
Cash $ 154
Total current assets 154
-------------------
TOTAL ASSETS $ 154
===================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 54,003
Accrued expenses 34,975
Dividends payable 114,766
Notes payable (Note 5) 99,377
-------------------
Total current liabilities 336,121
-------------------
TOTAL LIABILITIES 336,121
-------------------
CONTINGENCIES AND COMMITMENTS: (Note 4)
STOCKHOLDERS' (DEFICIT) (Note 6):
Preferred stock, Series A, $1.00 Par Value 148,000
Preferred stock, Series B, $1.00 Par Value ` 288,200
Preferred stock, Series C, $1.00 Par Value 10,200
Common stock, Class A, $0.001 Par Value 91,123
Common stock, Class B, $0.001 Par Value 1,000
Additional paid-in capital 11,527,950
Accumulated deficit (12,402,440)
-------------------
Total Stockholders' (Deficit) (335,967)
-------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 154
===================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-1
<PAGE>
<TABLE>
<CAPTION>
EQUITY AU, INC.
Statement of Operations
For the Year Ended
December 31,
1996 1995
(Unaudited)
INCOME:
<S> <C> <C>
Revenue $ 413 $ -
Direct Costs (15,569) (2,519)
------------------ ----------------
Total Income (15,156) (2,519)
GROSS PROFIT (15,156) (2,519)
================== ================
EXPENSES:
General and Administrative 287,836 191,066
------------------ ----------------
Total Expenses 287,836 191,066
LOSS FROM OPERATIONS (302,992) (193,585)
================== ================
OTHER INCOME (EXPENSE):
Interest income - 9
Gain on disposition of assets 105,482 -
Interest expense (5,514) (19,057)
------------------ ----------------
Total Other Income (Expense) (99,968) (19,048)
NET LOSS BEFORE INCOME TAXES $ (203,024) $ (212,633)
================== ================
Income taxes - -
NET LOSS (203,024) (212,633)
================== ================
Net Loss Per Common Share $ (0.00) $ (0.00)
================== ================
Weighted average common shares outstanding 91,123,183 78,175,088
================== ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
EQUITY AU, INC.
STATEMENT OF STOCKHOLDERS' EQUITY AND ACCUMULATED DEFICIT
Period from December 31, 1994 to December 31, 1996
Preferred Stock - A Preferred Stock - B Preferred Stock - C
Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Balance
December 31, 1994 148,000 $ 148,000 288,200 $ 288,200 10,200 $ 10,200
------- ------------- ------- ------------- ------ ------------
Balance
December 31, 1995 148,000 $ 148,000 288,200 $ 288,200 10,200 $ 10,200
------- ------------- ------- ------------- ------ ------------
Balance
December 31, 1996 148,000 $ 148,000 288,200 $ 288,200 10,200 $ 10,200
------- ------------- ------- ------------- ------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
EQUITY AU, INC.
STATEMENT OF STOCKHOLDERS' EQUITY AND ACCUMULATED DEFICIT
Period from December 31, 1994 to December 31, 1996
Class A Common Class B Common Paid in Accumulated
Shares Amount Shares Amount Capital Deficit
<S> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1994 61,247,070 $ 61,247 100,000 $ 1,000 11,347,759 $ (11,954,266)
Issuance of common stock:
for cash 27,078,885 27,079 157,221
for services 2,500,000 2,500 23,750
1993 dividend on
Preferred Series A 161,944 162 17,555 (17,717)
1994 dividend on
Preferred Series A 135,284 135 14,665 (14,800)
Net loss (212,633)
Balance
December 31, 1995 91,123,183 $ 91,123 100,000 $ 1,000 11,527,950 $ (12,199,416)
Net loss (203,024)
Balance
December 31, 1996 91,123,183 $ 91,123 100,000 $ 1,000 11,527,950 $ (12,402,440)
========== ============ ======= ============ ========== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
EQUITY AU, INC.
STATEMENT OF CASH FLOWS
For the Years Ended
December 31,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (203,024) $ (212,633)
Adjustments to reconcile net loss to net
cash used by operating activities:
Stock issued for services - 26,250
Disposal of assets (87,273) -
Assets exchanged for wages & fees 39,540 -
Dividends payable 114,766 -
Changes in operating assets and liabilities:
(Increase) decrease in Accounts Receivable - 30,127
(Increase) decrease in Prepaids 18,966 (18,965)
Increase (decrease) in Accounts Payable 38,212 (1,368)
Increase (decrease) in accrued expenses (22,082) (10,719)
------------------ -----------------
NET CASH (USED) BY OPERATING ACTIVITIES: (100,895) (187,308)
------------------ -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long term debt 99,377 24,000
Principle payments on long term debt (199,023) (32,246)
Sale of common stock - 184,300
------------------ -----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES: 99,377 176,054
------------------ -----------------
NET DECREASE IN CASH: (1,518) (11,254)
CASH AT BEGINNING OF PERIOD: 1,672 12,926
------------------ -----------------
CASH AT END OF PERIOD: $ 154 $ 1,672
================== =================
CASH PAID DURING THE YEAR FOR:
Interest $ 2,391 $ 2,302
Income taxes - -
NON-CASH FINANCING:
Common stock issued for services - 26,250
Common stock issued for dividends - 32,517
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
EQUITY AU, INC.
Notes to the Financial Statements
December 31, 1996
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. History
The Company was organized on March 5, 1988 as a Delaware
corporation under the name Sherry Lyn Corporation. The Company was
organized as a public company for the purpose of finding a
suitable combination partner.
The Company engaged in research and development of a process to
extract gold and other precious metals on various real properties
located in Arkansas. Partnerships were formed prior to 1994 by the
Company or by affiliates of the Company to raise working capital,
acquire mineral claims, rights, facilities, and equipment and to
explore for precious metals. In 1994, the Company was notified by
general partners of the partnerships that they were terminated and
dissolved.
The Company has had no significant operations since August 1994
and suspended mining operations in June 1995. During September
1996, the Company resumed operations and again suspended
operations in December 1996. The Company can make no assumptions
as to if, and when operations will resume again.
b. Use of Accounting Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make certain estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
c. Property and Equipment
Property and equipment are carried at cost. Upon retirement or
disposal, the asset cost and related accumulated depreciation are
removed from the accounts and any resulting gain or loss is
included in the determination of net income.
Maintenance, repairs and renewals are charged to expense when
incurred. Additions and significant improvements are capitalized
and depreciated. Upon retirement or sale, the cost of the assets
disposed of and related accumulated depreciation are removed from
the accounts and any resulting gain or loss are included in the
determination of net income.
d. Depreciation and Amortization
The Company depreciates its cost in buildings and equipment based
on its estimated useful life in years using the straight-line
method. No depreciation was taken in 1995 as there were no
property additions and the idle equipment was written down to
salvage value in 1994. During 1996, the remaining property and
equipment was used to settle a note and written off.
e. Revenue Recognition
The Company recognizes revenue when sales of precious metals or
other products are sold to qualified buyers.
f. Mining Claims
Mining claims are carried at cost. These costs will be amortized
on the units of production basis when mining operations commence.
The Company assesses the value of its claims annually for
impairment. Costs will be written of when a lease or claim is
dropped or expires or a determination is made that ore cannot be
extracted in economic quantities. During 1996, mining claims
previously valued at $7,500 were not renewed. The balance was
written off.
F-6
<PAGE>
EQUITY AU, INC.
Notes to the Financial Statements
December 31, 1996
NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
g. Long-Lived Assets
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses. Actual results could
differ from these estimates.
In 1995, the Financial Accounting Standards Board released the
Statement of Financial Accounting Standards No. 121 (SFAS 121),
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of." SFAS 121 requires
recognition of impairment of long-lived assets in the event of net
book value of such assets exceeds the future undiscounted cash
flows attributable to such assets. SFAS 121 is effective for
fiscal years beginning after December 15, 1995 with earlier
adoption encouraged. As a result, the Company recognized a loss in
the amount of $712,868 from the impairment of its advances, mining
claims and partnership investments in 1994.
h. (Loss) per Common Share
(Loss) applicable to common stock is based on the weighted average
number of shares of common stock and common stock equivalents
outstanding during the year.
i. Income Taxes
The Company is subject to the greater of federal income taxes
computed under the regular system of the alternative minimum tax
system. The Company adopted Statement of Financial Accounting
Standards No. 109,, "Accounting for Income Taxes." The Statement
requires the use of an asset and liability approach for the
accounting and financial reporting of income tax. No deferred tax
asset has been recognized for the operating loss carryforward as
it is more likely than not that all or a portion of the net
operating los will not be realized and any valuation allowance
would reduce the benefit to zero.
NOTE - 2 MINING CLAIMS
The Company held 75 mining claims as of December 31, 1995 and
1994. In 1994 the Company determined that exploring for precious
metals on these claims was not economically feasible and an
impairment on these claims was recognized in the amount of
$69,500. These claims are renewable in August of each year, but
there has been no activity on these claims in 1995. During 1996
the Company did not renew its claims. The balance of $7,500 for
claims was written off.
NOTE - 3 OTHER ASSETS
a. Silver Statue and Precious Gems
The Company acquired a silver statue and certain precious gems
from a related party in exchange for common stock. During 1996 the
silver statue was exchanged for services rendered by a related
party, and the gems were exchanged for fees owed.
NOTE - 4 CONTINGENCIES AND COMMITMENTS
The Company owed $29,461 and $38,469 as of December 31, 1996 and
1995 in state and federal payroll taxes. Penalties and interest
continue to accrue and management has determined that this will
have no significant or material adverse effect.
No provision or accrual has been made to cover any future remedial
action or cleanup activities for mining claims since these costs,
if any, cannot be determined at this time. However, the Company
has determined that any costs associated with future cleanup
liability will be covered by cash deposits held by the State of
Arkansas.
F-7
<PAGE>
EQUITY AU, INC.
Notes to the Financial Statements
December 31, 1996
NOTE - 4 CONTINGENCIES AND COMMITMENTS (Continued)
Although all partnerships that the Company and its Subsidiaries
served as General Partner have discontinued operations, no
provision or accrual has been made to cover any future remedial
action or formal dissolution since these costs, if any, cannot be
determined at this time.
In July 1996, the Securities and Exchange Commission filed a
default judgement against the Company for noncompliance in filing
the quarterly and annual reports on a timely basis. The Company
has agreed to the action and is making every effort to comply with
the order. During 1996 the Company filed its 1995 annual report
and the first and second quarter reports for 1996 late. The 1996
annual report and the first and second quarterly reports for 1997
will also be filed late. The Company cannot estimate the action
that will be taken by the Securities and Exchange Commission
related to these late filings.
NOTE - 5 NOTES PAYABLE
Notes payable of the Company are as follows:
December 31,
1996
Unsecured debt for advances from a related
party due upon demand $ 41,877
Unsecured promissory notes bearing interest
at 10%. Interest payable annually in either
stock or cash, or both. The lenders may earn
bonus distributions based on the productivity
of mining operations. Due on demand. 57,500
------------
Total Current Notes Payable $ 99,377
============
NOTE - 6 CAPITAL STOCK
a. Preferred Stock - Series A
The Company is authorized to issue 200,000 shares of non-voting
preferred shares, at a par value of $1.00 per share. These shares
accrue a 10% dividend annually. The cumulative amount of dividend
is $29,600 and $14,800 at December 31, 1996 and 1995,
respectively. These preferred shares are convertible into Class A
common stock at a conversion rate of 5.5 common shares for each
preferred share. There were 148,000 shares issued and outstanding
at December 31, 1996 and 1995.
Dividends paid during 1995 amounted to $17,717 for 1993 and
$14,800 for 1994. No dividends were paid during 1996.
b. Preferred Stock - Class B
The Company is authorized to issue 300,000 shares of non-voting
preferred shares, at a par value of $1.00 per share. These shares
accrue a 10% dividend payable annually on June 30 of each year.
The cumulative amount of dividend is $83,020 and $54,200 at
December 31, 1996 and 1995, respectively. These Preferred shares
are convertible into Class A common stock at a conversion rate of
16 common shares for each Preferred share. There were 288,200
shares issued and outstanding at December 31, 1996 and 1995.
F-8
<PAGE>
EQUITY AU, INC.
Notes to the Financial Statements
December 31, 1996
NOTE - 6 CAPITAL STOCK (Continued)
c. Preferred Stock - Class C
The Company is authorized to issue 100,000 shares of non-voting
preferred shares at a par value of $1.00 per share. These shares
accrue a 10% dividend annually. The cumulative amount of dividend
is $2,146 and $1,126 at December 31, 1996 and 1995, respectively.
These Preferred shares are convertible into Class A common stock
at a conversion rate of 12 common shares for each Preferred share.
There were 10,200 shares issued and outstanding at December 31,
1996 and 1995.
d. Preferred Stock
The Company is authorized to issue 1,400,000 shares of its
non-voting preferred stock at a par value of $1.00 per share.
There were no shares issued and outstanding at December 31, 1996
and 1995.
e. Common Stock - Class A
The Company is authorized to issue 99,900,000 Class A common
shares, at a par value of $.001 per share. These shares have full
voting rights. There were 91,123,183 shares outstanding as of
December 31, 1996 and 1995. There were 840,183 shares paid for,
but unissued as of December 31, 1996 and 1995 included in
outstanding shares.
The Company issued 161,944 and 135,284 shares as dividends in 1995
for 1993 and 1994 dividends accrued.
In May 1995, the Company issued in error 9,617,000 shares to
related party that were returned to the Company and canceled
during 1996. There was no consideration exchanged in the issue or
cancellation of these shares.
In 1994, the Company established an unqualified stock benefit plan
designed to provide awards of common stock to selected employees
based on certain performance/production criteria or achievement of
goals. The Company has 0 and 98,375 shares at December 31, 1996
and 1995, respectively held in the name of the plan as of December
31, 1996 and 1995.
f. Common Stock - Class B
The Company is authorized to issue 100,000 shares of its Class B
common shares at a par value of $.01 per share. The Class B shares
have the right to elect a majority of the Board of Directors of
the Company. There were 100,000 shares issued and outstanding as
of December 31, 1996 and 1995.
g. Warrants
On September 10, 1994, the Company issued warrants to Eastern
Global, LLC to purchase 200,000 shares of new issue Class A common
stock at an exercise price of $0.09375 per share. The warrants
expired unexercised on September 10, 1996.
NOTE - 7 RELATED PARTY TRANSACTIONS
Arkansas American Mining and Exploration, Inc. (AAME) was owned
and controlled by the founders of the Company. In 1988, AAME
exchanged mining claims, milling facility and a core drilling rig,
for the Company's common stock. A significant amount o the
Company's property and equipment as of December 31, 1995 is from
this transaction.
F-9
<PAGE>
EQUITY AU, INC.
Notes to the Financial Statements
December 31, 1996
NOTE - 7 RELATED PARTY TRANSACTIONS (Continued)
In 1994, a related party loaned the Company $152,000 secured by
the Company's land, buildings, and equipment. This note plus
interest was due in the fourth quarter of 1996. The Company
defaulted on the note. The property and equipment were claimed by
the note holder and written off by the Company.
During 1995, the Company paid $25,000 for services rendered by
related parties and issued 2,500,000 shares of Class A common
stock.
NOTE - 8 GOING CONCERN
The Company has limited capital resources available to meet
current obligations and develop its properties and bring into
production a profitable mining operation. The adverse effect on
the Company's results of operation due to its limited capital
resources can be expected to continue until such time as the
Company is able to generate additional capital from other sources.
These conditions raise concerns about the Company's ability to
continue as a going concern. Management has implemented, or
developed plans to implement, a number of actions to address these
conditions including: maintain the most attractive mining
properties; selling the precious gems; obtaining additional
financing; and investigating various joint venture opportunities.
Additional funding will be necessary for the Company's development
plans. There can be no assurance that additional funding will be
available when needed or, if available, that the terms of such
financing will not adversely affect the Company's results from
operations.
The financial statements do not include any adjustment to reflect
the possible future effects on the recoverability and
classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.
NOTE - 8 SUBSEQUENT EVENTS (UNAUDITED)
On June 6, 1997, the Company issued 8,900,000 restricted shares to
General Enterprises and Trading Company (Isle of Man) Ltd. for the
promise to loan the Company $100,000 and to pledge to the Company
a Capital Asset Certificate for $5,000,000.
F-10
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<PERIOD-END> DEC-31-1996
<CASH> 154
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<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
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<TOTAL-ASSETS> 154
<CURRENT-LIABILITIES> 336,121
<BONDS> 99,377
0
446,400
<COMMON> 92,123
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<TOTAL-LIABILITY-AND-EQUITY> 154
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<OTHER-EXPENSES> 287,836
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<INTEREST-EXPENSE> 5,514
<INCOME-PRETAX> (203,024)
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