SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For Quarter Ended March 31, 1999 Commission File No. 33-28562
TOUCAN GOLD CORPORATION
(Exact name of registrant as specified in charter)
Delaware 75-2661571
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(State or other jurisdiction (IRS Employer Identification No.)
at incorporation)
8201 Preston Road, Suite 600
Dallas, Texas 75225
- --------------------------------------------------------------------------------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (214) 890-8065
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
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 May 14, 1999, there were 8,027,933 shares of the common stock, $.01 par
value, of the registrant issued and outstanding.
Transitional Small Business Disclosure Format (check one)
YES NO X
--- ---
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TOUCAN GOLD CORPORATION
March 31, 1999
INDEX
PART I. FINANCIAL INFORMATION Page No.
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<S> <C> <C>
Item 1. Financial Statements
------
Consolidated Balance Sheets as of March 31, 1999 and December 31, 1998 (unaudited)...........F-1
Consolidated Statements of Operations for the three months ended March 31, 1999, 1998
and for the period beginning November 3, 1995 and ending on March 31, 1999 (unaudited)........F-2
Consolidated Statement of Stockholders' Equity for the three months ended March 31, 1999
and the year ended December 31, 1998 (unaudited)..............................................F-3
Consolidated Statements of Cash Flows for the three months ended March 31, 1999 and 1998
(unaudited)...................................................................................F-4
Notes to Consolidated Financial Statements (unaudited)........................................F-5
Item 2. Management's Discussion and Analysis of Financial Condition and
------ Results of Operations...........................................................................3
PART II. OTHER INFORMATION...............................................................................7
Item 1. Legal Proceedings...............................................................................7
------
Item 2. Changes in Securities and Use of Proceeds.......................................................7
------
Item 3. Defaults Upon Senior Securities.................................................................7
------
Item 4. Submission of Matters to a Vote of Security Holders.............................................7
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Item 5. Other Information...............................................................................7
------
Item 6. Exhibits and Reports on Form 8-K................................................................7
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SIGNATURES........................................................................................................9
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Toucan Gold Corporation
CONSOLIDATED BALANCE SHEETS
(unaudited)
March 31, December 31,
ASSETS 1999 1998
-------------- ------------------
<S> <C> <C>
Cash $ 14,439 $ 83,973
Receivables and other assets 133,156 47,844
------------ ------------
Total current assets 147,595 131,817
Mineral rights 2,589,869 2,559,869
------------ ------------
$ 2.737,464 $ 2,691,686
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Amounts payable to related parties $ 24,476 --
Accrued expenses and other liabilities 201,454 100,436
------------ ------------
Total current liabilities 225,930 100,436
Stockholders' equity
Preferred stock, par value .01 per share; authorized, 2,000,000
shares; issued and outstanding, none - -
Common stock, $.01 par value per share; authorized 30,000,000
shares; issued and outstanding, 8,237,933 shares 82,379 82,379
Additional paid-in capital 4,526,226 4,526,226
Deficit accumulated during the development stage (2,097,071) (2,017,355)
------------ ------------
Total stockholders' equity 2,511,534 2,591,250
------------ ------------
$ 2,737,464 $ 2,691,686
============ ============
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The accompanying notes are an integral part of these statements.
F-1
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Toucan Gold Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended March 31,
(unaudited)
For the period
November 3, 1995
(commencement
of operations)
through
1999 1998 March 31,1999
-------- -------- -----------------
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Cost and expenses
Legal and professional fees $ 39,005 $ 32,361 $ 651,215
Consulting fees 34,093 59,343 510,366
Claims abandoned - - 435,420
Travel costs 7,531 3,697 261,420
Stockholder Relations 360 21,369 156,394
Other 4,346 22,117 86,781
------------- ---------- -----------
Total cost and expenses 85,335 138,887 2,101,596
Other income
Interest income - (1,854) (78,716)
Interest expense - - (74,191)
Miscellaneous (5,619) - -
------------- ---------- -----------
Total other income (5,619) (1,854) (41,525)
------------- ---------- -----------
Net loss $ 79,716 $ 137,033 $ 2,097,071
============= ========== ===========
Loss per share - basic and diluted $ .01 $ .02
======== =======
Weighted average shares outstanding 8,237,933 8,039,933
============= ==========
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The accompanying notes are an integral part of these statements.
F-2
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<CAPTION>
Toucan Gold Corporation
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the six months ended March 31, 1999
and the year ended December 31, 1998
(unaudited)
Deficit
accumulated
Common stock Additional during
------------------- paid-in development
Shares Amount capital stage Total
------ ------ ---------- ----------- ---------
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Balance at January 1, 1998 8,039,933 $ 80,399 $4,488,606 $ (1,159,053) $3,409,952
Issuance of common stock 198,000 1,980 37,620 - 39,600
Net loss - - - (858,302) (858,302)
--------- -------- ---------- ------------ ----------
Balance at December 31, 1998 8,237,933 82,379 4,526,226 (2,017,355) 2,591,250
Net loss - - - (79,716) (79,716)
--------- -------- ---------- ------------ ----------
Balance at March 31, 1999 8,237,933 $ 82,379 $4,526,226 $ (2,097.071) $2,511,534
========= ======== ========== ============ ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
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<CAPTION>
Toucan Gold Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended March 31,
(unaudited)
For the period
November 3, 1995
(commencement
of operations)
through
1999 1998 March 31, 1999
------ ------ ----------------
<S> <C> <C> <C>
Operating activities
Net loss $ (79,716) $ (137,033) $ (2,097,071)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Claims abandoned - - (435,420)
Net changes in operating assets and liabilities
Prepaid expenses (96,979) 296 (132,623)
Accrued expenses and other liabilities 112,685 (80,273) 531,805
--------- ---------- ------------
Net cash used in operating activities $ (64,010) $ (217,010) $ (1,262,469)
Investing activities
Acquisition of mineral rights (30,000) (281,536) (3,542,643)
Sale of option - - (275,000)
--------- ---------- ------------
Net cash used in investing activities $ (30,000) $ (281,536) $ (3,267,643)
Financing activities
Net borrowings from related parties 24,476 37,084 311,546
Issuance of common stock, net of expenses - - 4,133,005
Proceeds from merger with Starlight Acquisitions, Inc. - - 100,000
--------- ---------- ------------
Net cash provided by financing activities 24,476 37,084 4,544,551
--------- ---------- ------------
Net increase (decrease) in cash (69,534) (461,462) 14,439
Cash at beginning of period 83,973 504,795 -
--------- ---------- ------------
Cash at end of period $ 14,439 $ 43,333 $ 14,439
========= ========== ============
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The accompanying notes are an integral part of these statements.
F-4
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Toucan Gold Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
(unaudited)
NOTE A - BASIS OF PRESENTATION
Organization
The consolidated financial statements contained herein have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. In the opinion of management, all adjustments necessary
for a fair presentation of the consolidated financial position as of March 31,
1999, and the consolidated results of operations for the three (3) months ended
March 1999 and 1998, and the consolidated cash flows for the three (3) months
ended March 31, 1999 have been made. In addition, all such adjustments made, in
the opinion of management, are of a normal recurring nature. The results of
operations for the periods presented are not necessarily indicative of the
results to be expected for the full fiscal year.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the interim reporting
rules of the Securities and Exchange Commission. The interim consolidated
financial statements should be read in conjunction with the audited consolidated
financial statements and related notes for the year ended December 31, 1998,
included in the Company's 1998 Annual Report on Form 10-KSB.
NOTE B - COMMITMENT
Under an agreement with a Brazilian individual, the Company is
committed to acquire priority claims upon clearance of title by the Departamento
Nacional De Produca Mineral ("DNPM"), the Brazilian governmental agency
responsible for regulating mineral rights. A dispute has arisen between the
parties as to the amount to be paid for the additional claims. However, the
parties have reached a tentative settlement agreement that provides for the
issuance of 40,000 shares of common stock and cash payments totaling $170,000 by
the Company, and delivery and documentation of at least eight priority claims by
the individual. Of the cash payments to be made by the Company, $120,000 would
not be due until delivery of the claims.
The tentative settlement would also provide for the delivery by the
Company to the individual of 210,000 shares of common stock. These shares have
been reflected as outstanding in the financial statements since December 31,
1997, pursuant to what the Company believed was an obligation pursuant to the
acquisition of claims from this individual in 1997.
This tentative settlement agreement is subject to the execution by the
parties of a definitive settlement agreement, and there can be no assurance that
such definitive settlement agreement will ultimately be entered into by the
parties.
Management has reported that the DNPM transfer documentation issues
relating to the thirteen (13) claims (of the original sixteen (16) claims, one
was defective and two were abandoned by the Company) discussed in the Company's
1998 Annual Report on Form 10-K have been resolved and that all of the claims
have been certified by the DNPM, with good, clean and transferrable title and
such claims have been published in the Brazilian Government Gazette.
F-5
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Generally
Toucan Gold Corporation (the "Company" or "Toucan") was organized in
the State of Delaware on July 22, 1996. The Certificate of Incorporation of
Toucan authorizes a class of 30,000,000 shares of common stock, par value $.01
per share (the "Company Common Stock"), and 2,000,000 shares of preferred stock,
par value $.01 per share. The Company was formed for the purposes of
reincorporating Starlight Acquisitions, Inc., a Colorado corporation
("Starlight"), in the State of Delaware (the "Reincorporation"). Starlight was
incorporated on January 20, 1989. The Reincorporation was effected by merging
(the "Merger") Starlight into the Company, which, prior to the Reincorporation,
was a wholly owned subsidiary of Starlight, pursuant to an Agreement and Plan of
Merger (the "Merger Agreement"). Upon completion of the Merger, Starlight ceased
to exist, and Toucan continued to operate the business of Starlight under the
name Toucan Gold Corporation. The Reincorporation became effective on July 29,
1996. As a result of the Reincorporation, each then outstanding share of
Starlight common stock, no par value (the "Starlight Common Stock"), was
converted into one share of Company Common Stock.
Effective May 10, 1996, Toucan Mining Limited, an exploration stage
company incorporated on November 3, 1995 under the laws of the Isle of Man
(British Isles) ("Toucan Mining"), became a wholly owned subsidiary of Starlight
when Starlight acquired all of the outstanding capital stock of Toucan Mining in
exchange for 4,534,999 shares of Starlight Common Stock (the "Share Exchange),
pursuant to a Share Exchange Agreement (the "Share Exchange Agreement"). As a
result of the Share Exchange, a change in control of Starlight occurred, whereby
Toucan Mining is deemed to have acquired Starlight.
Toucan Mining is a development stage company that conducts its
operations primarily through its wholly-owned subsidiary, Mineradora de Bauxita
Ltda. ("MBL"), which is an authorized mining company organized under the laws of
Brazil. From its inception until November of 1998, MBL was financed entirely by
the Company. The Company sought to capitalize MBL for the purpose of conducting
mineral exploration, specifically gold exploration. However, pursuant to the
Minmet Transaction (as defined below), MBL has received additional capital
infusions from Minmet for the same purposes.
The Minmet Transactions
On December 4, 1998, the Company consummated the following
transactions, involving, among other things, the grant of an option to Minmet
Plc ("Minmet"), an Irish company, whose shares ("Minmet Shares") are quoted on
the Exploration Securities Market of the Irish Stock Exchange, to purchase all
of the issued share capital of MBL (the "Minmet Transactions").
Toucan Mining granted an option (the "MBL Option") to Minmet to acquire
all of the issued share capital of MBL. Toucan Mining received 7.5 million
Ordinary Shares (the "Option Shares") in Minmet solely for Toucan Mining
granting the MBL Option. The MBL Option expires on June 30, 1999, subject to
earlier termination under certain circumstances. If the MBL Option is exercised
by Minmet, Minmet will acquire all of the issued share capital of MBL by issuing
an additional 25 million Ordinary Shares (the "Completion Shares") in Minmet to
Toucan Mining.
During 1998, the Company transferred 7.1 million Option Shares to
creditors, including certain affiliates, to extinguish $641,300 of obligations.
Toucan Mining is restricted from selling or distributing the remaining Option
Shares during the term of the MBL Option and for two (2) months thereafter
without the consent of Minmet, provided, however, that such two-month hold
period does not apply if the MBL Option is exercised prior to June 30, 1999.
The sale and distribution of the Completion Shares are also restricted
as follows. Toucan Mining or the Company may sell up to 3 million of the
Completion Shares in each of the three six (6) month periods after the issuance
thereof. Any Completion Shares not disposed of in a six (6) month period may be
added to the number of Completion Shares that may be sold in later periods.
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Minmet has agreed that the Option Shares and the Completion Shares may
be placed through Minmet's brokers with Minmet's consent and that it will act
reasonably in respect of all such requests by the Company for the sale of the
Option Shares and the Completion Shares.
Pursuant to the terms and conditions of the Transaction Documents (as
defined below), from November 1, 1998 to the expiration of the MBL Option,
Minmet is obligated: (i) to conduct detailed ground and airborne geophysical
surveys of MBL's claims and additional geological mapping (the "Exploration
Plan"), (ii) to prepare and complete all appropriate plans, logs and records of
the Exploration Plan, (iii) to spend a minimum of $500,000 on the Exploration
Plan, or, if the Exploration Plan expenses do not exceed $500,000, pay to the
Company the difference between $500,000 and the Exploration Plan expenses, and
(iv) to cover all of MBL's reasonable overhead and costs not related to the
Exploration Plan. MBL will have the benefit of these obligations even if the MBL
Option is not exercised.
In addition, the Company granted an option (the "Loan Option") to
Minmet to acquire from the Company the benefit of the loans that it has made to
MBL in the approximate principal amount of $975,000. The Company received the
sum of $275,000 solely for the Company granting the Loan Option. The Loan Option
expires on June 30, 1999, subject to earlier termination under certain
circumstances. If the Loan Option is exercised, Minmet will pay to the Company
the further sum of $250,000 and will issue to the Company warrants (the
"Warrants") to subscribe for a further 7.7 million Ordinary Shares (the "Warrant
Shares") of Minmet at an exercise price of (pound)0.08p per share.
The grant of the MBL Option and Loan Options to Minmet was accomplished
through the sale of all of the issued share capital of Anagram Limited, a newly
formed, wholly-owned subsidiary of Toucan Mining and a private limited company
incorporated under the laws of the Isle of Man ("Anagram") pursuant to an
agreement dated December 3, 1998 among the Company, Toucan Mining and Minmet
(the "Purchase Agreement"). Through the purchase of Anagram by Minmet and the
assumption by Minmet of that certain Option Agreement among the Company, MBL and
Anagram dated December 3, 1998 (the "Option Agreement") and that certain
Supplemental Agreement dated December 3, 1998 among the Company, MBL, Anagram
and Minmet (the "Supplemental Agreement," and collectively with the Purchase
Agreement and the Option Agreement, the "Transaction Documents"), Minmet
obtained the MBL Option and the Loan Option and incurred the obligations
detailed above.
In the event that Minmet exercises the MBL Option, the Company will
likely cease to have any rights to any Brazilian claims, other than the
potential rights to eight (8) claims offered for delivery by Joseph J. Haraoui
(the "Seller") pursuant to an agreement in principle described below. Therefore,
upon exercise of the Minmet Option, it is likely that the Company will at such
time, cease doing business in Brazil and discontinue all of its mining
operations.
While the Transaction Documents may permit the Company to distribute
the Option Shares, the Completion Shares, the Warrants, and the Warrant Shares
(collectively, the "Minmet Securities") to stockholders of the Company, subject
to certain limitations, the Board of Directors of the Company, in approving the
various agreements with Minmet, has determined for securities law reasons that
no Minmet Securities will be distributed to stockholders of the Company as a
dividend or in any similar distribution. Accordingly, the Board of Directors of
the Company has no present intention of distributing any of the Minmet
Securities to stockholders of the Company as a dividend or in any similar
distribution, and no such distribution can be made to stockholders of the
Company unless with the unanimous consent of the Board based on an opinion of
counsel that such distribution will not require registration under the
Securities Act of 1933, as amended (the "Securities Act"), of the issuance of
the Minmet Securities to Toucan Mining or the Company or such distribution.
Consequently, depending on the amount and nature of other assets owned by the
Company at relevant times, the Company may need to acquire non-securities assets
or sell or otherwise dispose of the Minmet Securities in order to avoid being
deemed to be an investment company under the Investment Company act of 1940, as
amended.
The consolidated financial statements for the fiscal year ended March
31, 1999, reflect the results of Toucan's operations, which consisted primarily
of the Minmet Transactions and the maintenance of Toucan Mining and MBL's
various claims and purchase of new claims which were capitalized in the
financial statements. Legal, accounting, investor relations, consulting travel,
subsistence expenses and other general administrative costs were expensed.
4
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MBL, through its Brazilian office, with funds provided in connection
with the Minmet Transactions, intends to continue its mining concessions by
undertaking a program of mineral exploration to target and explore selected
areas of its exploration claims to determine which areas are most likely to
contain economic gold mineralization. The Brazilian office is staffed by eight
(8) employees and consultants, consisting of geologists, land personnel,
administrative personnel and field hands. MBL conducts its mineral exploration
program through third-party operators.
Exploration and Analysis Programs
During December 1997, the Company completed a 5,000 meter reverse
circulation drilling program involving six separate locations in the Cuiaba
District on which artisanal mine workings ("nugget patches") have taken place.
The Company believes that these nugget patches are de facto geochemical
anomalies reflecting the possible presence of disseminated gold mineralization
in the subsurface. A total of 73 holes were drilled to an average depth of 69
meters and sampled at one-meter intervals. In addition to intersecting variable
quantities of "visible gold" at all six of the localities tested, drilling has
revealed the presence of metasediments with imbedded metavolcanic rocks of
Proterozoic age. Samples weighing approximately 25 kg. were split, and
approximately 3 kg. from each sample were sent for assay testing at two
well-known Canadian laboratories.
An assay test is a chemical test performed on a sample of ore or
minerals to determine the amount of valuable minerals contained in such sample.
An assay test does not constitute, and should not be read as, a reserve report
reflecting proven or probable reserves.
The Company's 1997 drilling program was designed to penetrate the upper
saprolite and geochemically sample lower saprolitic material. Management
expected any gold mineralization in the lower saprolite to be finer grained,
more homogeneous and reliably sampled by reverse circulation drilling. However,
the assay reports reflected a wide variation of results ranging from less than 5
parts per billion and 23.64 grams per ton. Because such results can occur when
sampling "coarse gold" mineralization, management conducted additional testing
of the samples utilizing a commonly practiced manual inspection technique, which
revealed the presence of "visible gold" in some of the samples, many of which
appeared, on the basis of the prior assay, to have negligible gold content.
Based on such testing, management believes that the weathering of the saprolite
extended deeper into the surface than was originally estimated and that its
drilling did not sample the lower saprolite. Because of the indication of course
gold mineralization, management concluded that it could not rely upon the
individual values obtained in the original assay. Accordingly, management
resubmitted 132 larger samples containing "visible gold" for re-assaying to one
of the Canadian laboratories in order to use such laboratory's special method of
sample preparation and testing suited for the detection and measurement of
course gold mineralization. Most of the later assayed samples were found to
contain consistently higher gold content than the previously assayed samples.
During the term of the MBL Option, Minmet will conduct, fund and
control the gold exploration program with respect to the Company's claims in the
Cuiaba Basin. During the term of the Minmet Option, the Company and MBL are
entitled to be kept informed of the progress and status of this exploration
program but will not have any decision-making authority with respect thereto.
The Company has been advised by Minmet that it has completed 36,000
line kilometers of airborne magnetic and radiometric surveying, which included
an aerial survey (the "Airborne Survey") of certain regions in the Cuiaba Basin.
The Company has been further advised by Minmet that it has conducted geochemical
orientation surveys on several chosen nugget patches using the new Mobile Metal
Ion geochemistry orientation technology ("MMI technology"). MMI technology is
considered to be cutting edge geochemical technology, is a recent Australian
development, and is proving to be a very useful tool in mineral exploration. The
results of the Airborne Survey and the MMI techology will help Minmet and the
Company to prioritize the mineral targets so that any exploration efforts will
be directed at those targets with the highest mineral potential.
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In connection with this gold exploration program, Minmet has issued
several press releases describing the status of this exploration program.
These press releases may be reviewed in their entirety at
http://www.minesite.com. Neither the Company nor MBL participated in the
preparation or review of these press releases, and neither the Company nor MBL
has independently verified the accuracy of these press releases.
Management believes that with funds provided in connection with the
Minmet Transactions, the Company will have sufficient funds to meet its
obligations through the end of the MBL Option period, June 30, 1999, except as
set forth below.
Additional Claims
In September 1996, the Company entered into an agreement with the
Seller to acquire twenty-five (25) additional priority claims in the Cuiaba
Basin (the "Claims Agreement"). Pursuant to the terms of the Claims Agreement,
as the Company understood it, the Company was to make an initial payment to the
Seller in the amount of $500,000. The Claims Agreement provided that the Seller
would receive $36,000 in cash for each claim (a "Certified Claim") that was
certified by the Departamento Nacional De Produca Mineral ("DNPM") as held by
the Seller with priority, having good, clean and transferrable title. As of the
date of this Quarterly Report on Form 10- KSB (the "Annual Report"), the Company
has paid to the Seller the initial cash payment of $500,000, as contemplated by
the Claims Agreement, and an additional payment of $576,000 in cash as payment
for sixteen (16) claims that the Company believed at the time of the transfer of
such claims to the Company to be Certified Claims. The Seller, however,
disagreed with the Company with respect to certain terms and conditions of the
Claims Agreement.
The Company and the Seller have reached an agreement in principle to
settle any disputes with the Company relating to the Claims Agreement. This
tentative settlement agreement contains the following provisions: (i) the
Company will issue to the Seller an aggregate of 250,000 shares of Company
Common Stock, 210,000 shares of which had been previously authorized for
issuance by the Company but not issued to the Seller pending a resolution of the
dispute between the Company and the Seller, (ii) the Company will pay a $50,000
cash payment to the Seller on the date a definitive settlement agreement is
entered into, (iii) the Company will pay to the Seller an additional cash
payment of $120,000 to the Seller upon the delivery by the Seller to the Company
of eight (8) claims certified by the DNPM, with priority, having good, clean and
transferable title and published by the Brazilian authorities in the Government
Gazette. As a term to the agreement in principle, the Company will not be
obligated to make the cash payment of $120,000 unless all eight (8) claims are
delivered to the Company on or before June 30, 2000. This tentative settlement
agreement is subject to the execution by the parties of a definitive settlement
agreement, and there can be no assurance that such definitive settlement
agreement will ultimately be entered into by the parties.
Additionally, as reported in the Company's Annual Report on Form 10-KSB
for the period ended December 31, 1998, of the sixteen (16) claims transferred
by the Seller to the Company, one (1) claim was determined by the DNPM to have a
defective title and two (2) other claims were dropped from the Company's roster
of claims. It was further reported that the remaining thirteen (13) claims had
not been certified by the DNPM at that time. However, as of the date of this
Quarterly Report on Form 10-QSB, the DNPM has certified these claims as having
good, clean and transferrable title and such claims have been published in the
Brazilian Government Gazette.
As noted above, in the event that Minmet exercises the Minmet Option,
the Company will likely cease to have any rights to any Brazilian claims, other
than the rights to the eight (8) discussed above. Therefore, upon the exercise
of the Minmet Option, it is likely that the Company will cease its mining
operations in Brazil altogether and will no longer be a participant in the
mining industry. As a result of exercising the Minmet Option and the Loan
Option, the Company will receive the Completion Shares, the Warrants and
$250,000 in cash. The Company believes that it will have sufficient cash
proceeds from the exercise of the Minmet Option and the Loan Option to pay the
Seller with respect to any settlement agreement ultimately entered into with the
Seller.
Conversely, if the Minmet Option is not exercised, the Company, through
MBL, will (i) maintain is Brazilian mining operations, (ii) have the benefit of
the funds provided in connection with the Minmet Transactions, (iii) will own
and will derive the benefits of the surveys conducted by Minmet in connection
with the Minmet Transactions and other assets that are derived from Minmet's
6
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operations conducted in connection therewith, and (iv) will continue its program
to acquire and explore additional claims in the Cuiaba Basin.
In the event that the Minmet Option is not exercised, the Company will
need a substantial amount of additional capital to meet its obligations to the
Seller with respect to the additional claims and to finance its exploration
activities and to meet its working capital needs beyond June 30, 1999. In that
event the Company will explore strategic alternatives that may involve any one
or a combination of further capital raising, a joint venture, sale of part or
all of its exploration assets, a merger, restructuring or other business
arrangements. Such possible transactions may result in substantial dilution or
even elimination of the Company's interest in its mining claims. There can be no
assurance that the Company will be able to raise such additional capital or
negotiate and consummate such other transactions on terms that are favorable to
the Company.
The program to fully explore and develop its claim area will take
several years. The costs associated with continuing the Company's operations
could rise if, among other things, the weather proves untypically harsh,
unforeseen ground conditions are encountered, equipment becomes difficult to
source, the availability of drilling operators becoming increasingly scarce and
their rates increasing accordingly, or negotiations with surface owners become
prolonged. MBL may spend more or less on claim acquisitions than currently
estimated. There can be no assurance that the exploration program will result in
the discovery of economic gold mineralization. The Company's financial
statements have been prepared assuming that the Company will continue as a going
concern. Furthermore, the recoverability of the cost of mineral rights is
dependent on the Company's ability to continue exploration, establish the
existence of economically recoverable reserves, develop these reserves, and
achieve profitable production or obtain sufficient proceeds from the disposition
of the rights. The Company's financial statements do not include any adjustments
that might result from the outcome of these uncertainties. The matters discussed
herein contain forward- looking statements that involve certain risks,
uncertainties and additional costs detailed herein. The actual results that are
achieved may differ materially from any forward-looking projections, due to such
risks, uncertainties and additional costs.
Certain of the information contained in this Annual Report on Form
10-KSB constitutes forward looking statements within the meaning of Section 27A
of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as
amended, that involves certain risks, uncertainties and additional costs
described in this Annual Report on Form 10-KSB. The actual results that are
achieved may differ materially from any forward looking projections, due to such
risks, uncertainties and additional costs. Although the Company believes that
the expectations reflected in such forward looking statements are based upon
reasonable assumptions, it can give no assurance that its expectations will be
achieved. Subsequent written and oral forward looking statements attributable to
the Company or persons acting on its behalf are expressly qualified in their
entirety by reference to such risks, uncertainties and additional costs.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities and Use of Proceeds.
(a) None
(b) None
(c) None
(d) None
Item 3. Default Upon Senior Securities.
None
7
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
The Company and the Seller have reached an agreement in principle to
settle any disputes with the Company relating to the Claims Agreement. This
tentative settlement agreement contains the following provisions: (i) the
Company will issue to the Seller an aggregate of 250,000 shares of Company
Common Stock, 210,000 shares of which had been previously authorized for
issuance by the Company but not issued to the Seller pending a resolution of the
dispute between the Company and the Seller, (ii) the Company will pay a $50,000
cash payment to the Seller on the date a definitive settlement agreement is
entered into, (iii) the Company will pay to the Seller an additional cash
payment of $120,000 to the Seller upon the delivery by the Seller to the Company
of eight (8) claims certified by the DNPM, with priority, having good, clean and
transferable title and published by the Brazilian authorities in the Government
Gazette. As a term to the agreement in principle, the Company will not be
obligated to make the cash payment of $120,000 unless all eight (8) claims are
delivered to the Company on or before June 30, 2000. This tentative settlement
agreement is subject to the execution by the parties of a definitive settlement
agreement, and there can be no assurance that such definitive settlement
agreement will ultimately be entered into by the parties.
Item 6. Exhibits and Reports on Form 8-K.
EXHIBITS
The following exhibit is furnished in accordance with Item 601 of Regulation
S-B.
27* Financial Data Schedule
- ------------------
* filed herewith
Form 8-K: The Company filed with the Securities and Exchange
Commission a Current Report on Form 8- K, dated January 5,
1999, describing the Minmet Transactions.
8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Quarterly Report to be signed on its behalf
by the undersigned thereunto duly authorized.
TOUCAN GOLD CORPORATION
(Registrant)
Date: May 17, 1999 By: /s/ Robert P. Jeffcock
---------------------------------------
Robert P. Jeffcock, President and Chief
Executive Office (Principal Executive
Officer)
Date: May 17, 1999 By: /s/ Robert A. Pearce
---------------------------------------
Robert A. Pearce, Chief Financial
Officer (Principal Financial Officer
and Chief Accounting Officer)
9
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