SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-KSB/A (Amended)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 for the fiscal year ended December 31, 1996.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period from to
Commission File No. 0-17874
XPLORER, S.A.
(Name of small business issuer as specified in its charter)
Nevada 88-0199674
- ------------------------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4750 Kelso Creek Road, Weldon, California 93238
----------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (619) 378-3936
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value.
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act 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 [ ] NO [ X ]
Page 1 of 45
<PAGE>
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B 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. [ ]
Revenues for the fiscal year ended December 31, 1996 totaled -0-.
As of December 31, 1996, the aggregate market value of the voting stock held by
non-affiliates of the registrant (based upon the average of the closing bid and
asked prices on such date) was approximately $-0-. (Not Trading.)
As of May 30, 1997, the registrant had outstanding 18,782,445 shares of Common
Stock.
Transitional Small Business Disclosure Format: [ ] Yes [ X ] No
Exhibit index page number: 24-25
Total sequentially numbered pages in this document: 45
Page 2 of 45
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Introduction
The Registrant was incorporated under the laws of the State of Nevada on May 2,
1984. Effective December 18, 1992, the Registrant changed its name from L.A.
Entertainment, Inc. to Gerant Industries, Inc. On March 1, 1994, Gerant
Industries, Inc. filed a petition for reorganization under Chapter 11 of the
United States Bankruptcy Code in the United States Bankruptcy Court for the
Central District of California. The Registrant operated as a
debtor-in-possession until the United States Bankruptcy Court entered an order
confirming the Registrant's Third Amended Plan of Reorganization (the "Plan") on
July 24, 1996, and the Plan became effective August 5, 1996. In accordance with
the Plan, Restated Articles of Incorporation were filed with the Secretary of
State of Nevada in August, 1996, changing the Registrant's name from Gerant
Industries, Inc. to XPLORER, S.A. ("XPLORER" or the "Company").
Included in the Plan was the valuation utilized by Atlantic Pacific Trust
("APT") for its gold ore reserves. These values are based upon a comprehensive
geological reserve study conducted by Christopher L. Pratt, Geologist, which
said report was updated December 31, 1996.
Pursuant to the Plan, certain holders of Units of Beneficial Interest ("UBI's")
in the Atlantic Pacific Trust, LLC, formerly Atlantic Pacific Trust ("APT")
exchanged 417,240 UBI's on August 5, 1996, the effective date of the Plan, for
1,043,000 shares of Preferred Stock of XPLORER. APT had provided the necessary
capital and arranged loans for the successful completion of the Plan. The
Managers of APT are also officers and directors of the Company. See "Conflicts
of Interest."
Additionally, APT holders of approximately $29,278,000 face value of XPLORER
Debtor Notes converted their XPLORER Debtor Notes into approximately 14,639,750
shares of XPLORER Common Stock. Furthermore, holders of securities in the Debtor
shared pro rata in a distribution of 400,000 Units consisting of one (1) share
of XPLORER's Common Stock and one (1) Class A Warrant entitling the holder to
purchase one (1) share of XPLORER's Common Stock one year from the August 5,
1996 effective date of the Plan, at 70% of the market asking price. Such Warrant
must be exercised within 30 days of August 5, 1997. Pursuant to Section 1143 of
the United States Bankruptcy Code, interest holders must surrender their
certificates representing the securities of the Debtor within one (1) year of
the Confirmation Date of the Plan as a condition to receiving the securities
pursuant to the Plan. Certain other classes of creditors were given the right to
elect common shares of XPLORER in lieu of cash in satisfaction of their claims.
In November, 1996, the Company acquired an additional 189,960 UBI's of APT in
exchange for 237,550 shares of its Preferred Stock. Currently, XPLORER owns
59.16% of APT.
Page 3 of 45
<PAGE>
The Company's principal executive offices are located at 4750 Kelso Creek Road,
Weldon, California 93282, and its telephone number is (619) 378-3936.
CAUTIONARY "SAFE HARBOR" STATEMENT UNDER THE UNITED STATES
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
With the exception of historical matters, the matters discussed in this report
are forward- looking statements that involve risks and uncertainties that could
cause actual results to differ materially from targeted or projected results.
Such forward-looking statements include statements regarding targets for gold
production, cash operating costs and certain significant expenses, schedules for
completion of detailed feasibility studies and initial feasibility studies,
potential increases in reserves and production, the timing and scope of future
drilling and other exploration activities, expectations regarding receipt of
permits and commencement of mining or production, anticipated recovery rates and
potential acquisitions or increases in property interests. Factors that could
cause actual results to differ materially include, among others, changes in gold
and other mineral prices, unanticipated grade, geological, metallurgical,
processing, access, transportation of supplies or other problems, results of
current exploration activities, results of pending and future feasibility
studies, changes in project parameters as plans continue to be refined,
political, economic and operational risks of foreign operations, availability of
materials and equipment, the timing of receipt of governmental permits, force
majeure events, the failure of plant, equipment or processes to operate in
accordance with specifications or expectations, accidents, labor relations,
delays in start-up dates, environmental costs and risks, the outcome of
acquisition negotiations and general domestic and international economic and
political conditions, as well as other factors described herein or in the
Company's filings with the U.S. Securities and Exchange Commission. Many of
these factors are beyond the Company's ability to predict or control. Readers
are cautioned not to put undue reliance on forward-looking statements. See "Risk
Factors" for items which could affect forward-looking statements.
General Business
Glossary
The following terms are described to aid in understanding the Company's Form
10-KSB.
CORE DRILLING (OR DRILL HOLE)--Drilling with a hollow diamond-studded bit to cut
out a solid rock core. A column of rock is extracted from inside the drill rod
for geological examination and assay.
GRADE--The metal content of ore. With precious metals, grade is expressed as
troy ounces per ton of ore.
KILO (KILOGRAM)--A measure of weight equal to 32.15 troy ounces.
Page 4 of 45
<PAGE>
ORE BODY--A mineral deposit that can be mined at a profit under existing
economic conditions.
ORE RESERVES--The tonnage and grade of an economically and legally extractable
ore body.
OUNCE--Throughout this report, the term "ounce" is used as an abbreviation for
the troy ounce measure of weight. The troy ounce has been used exclusively as a
previous metals measurement, probably since the 16th Century.
PROVEN ORE RESERVES--"Proven ore" or "measured ore" means that material which
tonnage is computed from dimensions revealed in outcrops or trenches or
underground workings or drill holes and for which the grade is computed from the
results of adequate sampling, and for which sites for inspection, sampling and
measurement are so spaced and the geological character so well defined that the
size, shape and mineral content are established, and for which the computed
tonnage and grade are judged to be accurate within limits which shall be stated.
PROBABLE ORE RESERVES--"Probable ore" or "indicated ore" means that material for
which tonnage and grade are computed partly from specific measurements, samples
or production data, and partly from projection for a reasonable distance on
geological evidence, and for which the sites available for inspection,
measurement and sampling are too widely or otherwise inappropriately spaced to
outline the material completely or to establish its grade throughout.
TON--The short ton is used in this report. It is a unit of weight equal to 2,000
pounds, or 907.2 kilograms.
The Company is a development stage company. Through its majority-owned
subsidiary, APT, the Company is engaged in the acquisition, exploration and
development, which will lead to operation and production of mineral properties.
Except where otherwise noted, the "Company" includes its majority-owned
subsidiary, APT.
As a result of a series of transactions, between 1993 and 1995, APT acquired
eight unpatented mineral claims located on Piute Mountain, Kern County,
California. This group of claims is commonly known as the Evening Star Mine. APT
also leases approximately 95.45 acres of adjacent property containing three
patented mining claims and the Weldon Research Center. See "Item 2.
Description of Property."
APT does, and continues to, finance its exploration and development of the
Evening Star Mine through the sale and issuance of its securities in private
transactions and through the sale in Germany and Austria of Convertible Gold
Bonds, 9% Investment Certificates and gold certificates. See "Item 1. Business
Financing."
To date, no gold or other precious metals have been mined commercially from the
Evening Star Mine. There has been extensive development work conducted in the
past, including underground and surface sampling. The Evening Star Mine has a
nine-foot wide and ten-foot tall tunnel. This tunnel cross cuts several small
veins and ore bodies. The tunnel system is approximately 1,650 feet in length
and is approximately 380 feet below the surface. The Evening Star Mine tunnel
Page 5 of 44
<PAGE>
provides access to the area where the ore has been blocked out ("Proven Ore
Reserves"). Proven Ore Reserves are determined from exposure in outcroppings,
cuts, pits, shafts, mine workings, drill holes or otherwise where measurements
are so closely spaced that the computed tonnage and grades of ore will have a
high degree of accuracy. Underground tunnel samples were taken every five feet.
The results of the sampling indicated that the mine contained approximately
435,000 ounces of gold. The Company has downgraded the classification of this
ore from Proven to Probable Ore Reserves.
Upon the completion of the Pilot Plant, feasibility studies and additional
drilling and sampling, the Company will then upgrade the reserves from Probable
to Proven Ore Reserves. The 1996 ore reserves have been estimated by an
independent company, Precious Metals Exploration. The reserves were estimated by
an independent geological engineering consultant, Christopher L. Pratt,
President of Precious Metals Exploration.
Proposed Operations
In July, 1995, APT entered into an Operating Agreement (the "Agreement") with
EMTEC, L.L.C. ("Emtec") principally owned by officers and directors of the
Company and Managers of APT. See "Item 12. Certain Relationships and Related
Transactions." In accordance with the Agreement, Emtec will provide a full turn
key mining and refining operation for the Evening Star Mine. APT will pay Emtec
all of its costs and expenses plus 18% of same. Costs are defined as all costs
directly and indirectly related to Emtec performing its duties in the
exploration, development, production and support facilities of the Evening Star
Mine. Through March 31, 1997, APT has paid Emtec $548,318 for its developmental
work in the Evening Star Mine.
The Registrant intends to develop its mining properties in two phases.
Phase I.
The Registrant will continue drilling and sampling to block out Proven and
Probable Ore Reserves. A core drilling rig will be used in order to produce
approximately 1,000 feet of drill hole weekly. Due to seasonal conditions,
drilling will only be conducted for approximately 36 weeks annually.
The Registrant will also construct a pilot ore processing plant ("Pilot
Refinery") capable of processing up to two tons of ore per hour. Included with
the Pilot Refinery will be the construction of all support facilities, including
laboratory, repair shops and storage bins.
Page 6 of 45
<PAGE>
All engineering and permits necessary for the operation of the Pilot Refinery
and for its expansion are planned to be completed during Phase I. APT estimates
that Phase I will cost between $2.8 to $3.4 million and will take between nine
and 12 months to complete. There is no assurance that the Company will be able
to raise the required capital to complete Phase I.
Phase II.
After the Pilot Refinery is operational and gold and other minerals are
successfully and cost effectively being processed, a larger ore processing plant
("Main Refinery") will be built. Current plans provide for a Main Refinery to
process anywhere from 125 to 250 tons of ore per day. The size and cost of such
Main Refinery is dependent upon several factors, including a) test results from
the Pilot Refinery, b) present and future Proven and Probable Ore Reserves that
have been blocked-out, and c) completion of a feasibility report.
Phase II development is estimated to cost between $6.8 to $10 million and will
take between 14 to 18 months after Phase I to complete.
There is no assurance that the Registrant will be able to raise the capital to
complete Phase I or, if Phase I is completed, to proceed with Phase II. To date,
the Registrant's primary funds for operations have come from the sale of bonds
and gold contracts in Germany and Austria. See "Item 1. Business - Financing."
The Registrant intends to continue to sell bonds in Germany and Austria. There
is no assurance that sales of bonds will continue in amounts necessary to fund
any of the Registrant's planned operations, including completion of Phase II.
Transportation
The Evening Star Mine is located in the Piute Mountains of Kern County at an
elevation of 7,800 feet MSL. Site access is provided via paved, all season
highways (State Route 178 and Kelso Valley Road) terminating in approximately 17
miles of graded dirt and gravel road. This dirt road is well maintained and snow
removal by the Company for 17 miles during the winter provides year-round access
to the project site. The Piute Mountains experience only moderate snowfall
during the winter, and it is estimated that snow removal would be limited to an
average of six episodes per year clearing approximate four to twelve miles of
roadway.
Power
An existing Company-owned diesel power plant, producing approximately 400kW of
power, provides electricity necessary for the operation of the mine. Maintenance
of the access roadways will provide for timely truck delivery of fuels for the
power plant. The existing storage facility will be expanded to approximately
6,000 gallons, or one week of fuel supply. Typical operation will include
semi-weekly fuel deliveries.
Page 7 of 44
<PAGE>
Water Supply and Waste Disposal
Water for mining, dust control, and domestic use will be provided by water wells
proximate to the project site. Domestic and process demand is estimated to be
15,000 gallons per day (10.4gpm). Storage tanks will allow for constant well
pumping rates and fluctuating demands.
Domestic wastewater disposal will be via standard septic tank and leach field
systems located adjacent to their respective sources. Process wastewater will be
recycled and reused in the process, with the only process discharge comprising
the moisture contained within the spent ore, estimated at 4,400 gallons per day.
Financing
Between February 1, 1996 and August 6, 1996, APT sold $196,000 of Industrial
Revenue Bonds ("Bonds"). The Bonds were sold in Germany and Austria by Senator
Securities Corporation, Dusseldorf, Germany ("Senator"). The Bonds are zero
discount bonds issued in denominations of $12,500 with maturity dates between
one to five years. Upon maturity, APT must pay $12,500 U.S., plus interest at 9%
per annum, or deliver One Kilo of Internationally Hallmarked 99.99 Fine Gold
Bullion (32.15 Troy Ounces). As of March 31, 1997, APT owed $337,500 on these
Bonds of which $112,500 is due on or before December 31, 1997.
Between June 1, 1996 and January 15, 1997, APT sold $735,000 of 9% Investment
Certificates ("Certificates"). The Certificates were sold in Germany and Austria
by Senator and by Atlantic Pacific Finanzprodukte, GmbH ("APF"), the
Registrant's wholly-owned subsidiary. The Certificates provide for interest at
9% per annum payable with principal at maturity. The Certificates mature between
one and five years from date of purchase. As of March 31, 1997, APT owed
$1,130,200 on these Certificates of which $529,500 is due on or before December
31, 1997.
Between September, 1995 and September, 1996, APT sold $444,000 of Gold Ore
Contracts ("Contracts") in One Kilo Units. Each Unit was sold for $9,645. There
are 32.15 troy ounces in one kilo. All contracts were sold in Germany and
Austria by Senator. All Contracts are due within one year of purchase. As of
March 31, 1997, there were $273,000 Contracts owing by APT, all of which are due
and payable on or before December 31, 1997.
On November 1, 1996, APT began selling, through APF, 9% Bond
Certificate/Convertible to Gold (the "9% Bond"). The total face amount offering
is 45,000,000 Deutsche Marks. At an exchange rate of 1.5 DEM (one and one-half
Deutsche Marks) to 1 (one) U.S. Dollar, the total face amount in U.S. Dollars is
$30,000,000. From this offering, the total net capital to APT, assuming the
entire offering was sold out, and assuming a 1.5 to 1 exchange rate, would be
DEM 35,009,280, or U.S.$23,339,540. The 9% Bond is non-interest bearing, but is
issued to an interest-bearing account, in which the difference between the
issuing price and face value meets an effective yield of 9% per annum. The 9%
Bonds are issuable only as fully registered bonds in denominations of 600
Deutsche Marks ("DM600") and may be increased by denominations of DEM 600. The
Page 8 of 45
<PAGE>
9% Bonds mature between one and five years from date of purchase. The Bearer of
the 9% Bond shall, within 60 days prior to the maturity date of the 9% Bond,
notify APT of the Bearer's election of either (A) payment in cash in the
Principal Amount of the 9% Bond paid in Deutsche Marks, or (B) receive payment
in the form of one ounce of gold bullion issued to Bearer at the rate of one
ounce for every DEM 600 owed to Bearer by AT, or (C) Bearer shall receive
payment in cash in the amount of the market value of the gold bullion at the
maturity date, with the cash payment being in Deutsche Marks. The 9% Bonds are
being issued and are subject to a Trust Resolution dated October 1, 1996 and a
Prospectus dated October 28, 1996. Both the Trust Resolution and the Prospectus
were prepared by attorneys for the German selling agents. The 9% Bonds are only
being offered for sale in Germany and Austria. Through March 31, 1997, $316,611
9% Bonds were sold of which $37,968 is due within one year.
Assignment of Assets
In connection with the sale by APT of Bonds, Certificates, Contracts and 9%
Bonds (the "Securities"), APT has assigned its eight mineral claims, known as
the Evening Star Mine, to Benjamin C. Rice, Esq. ("Trustee"), a director of the
Company, to be held in trust for a term of ten years or until all obligations
owed on the Securities are fully satisfied. The Trustee will allow APT to remove
and process gold ore from the Evening Star Mine for delivery and payment of
Securities as they mature. APT may also remove additional gold ore to cover
expenses only but may not remove any gold ore for any other purpose until all
the Securities have been fully paid. Upon default, the Trustee may cause the
gold ore to be refined by a third party refiner or he may sell the claims to pay
all indebtedness evidenced by the Securities.
Regulation
The Company's operations are subject to comprehensive regulation with respect to
operational, environmental, safety and similar matters by federal agencies
including the U.S. Department of the Interior, the U.S. Department of
Agriculture (U.S. Forest Service), the U.S. Environmental Protection Agency
("EPA"), the U.S. Mine Safety and Health Administration ("MSHA") and similar
state and local agencies. Failure to comply with applicable laws, regulations
and permits can result in injunctive actions, damages and civil and criminal
penalties. If the Company expands or changes its existing operations or proposes
any new operations, it may be required to obtain additional or amended permits
or authorizations. The Company intends to spend substantial time, effort and
funds in planning, constructing and operating its proposed facilities to ensure
compliance with U.S. environmental and other regulatory requirements. Such
efforts and expenditures are common throughout the U.S. mining industry and
generally should not have a material adverse effect on the Company's competitive
position.
Page 9 of 44
<PAGE>
Legislation to change the general mining laws applicable to operations on
federal lands has been introduced into the 105th Congress, which convened in
January 1997, and additional introductions are expected. The result of such
proposals is speculative.
Risk Factors
Mining and Processing
The Company's business operations are subject to risks and hazards inherent in
the mining industry, including but not limited to unanticipated variations in
grade and other geological problems, water conditions, surface or underground
conditions, metallurgical and other processing problems, mechanical equipment
performance problems, the unavailability of materials and equipment, accidents,
labor force and force majeure factors, unanticipated transportation costs and
weather conditions, any of which can materially and adversely affect, among
other things, the development of properties, production quantities and rates,
costs and expenditures and production commencement dates.
In the case of development projects, including new pits or underground mines at
currently operated properties or expansions of existing mines, although the
Company utilizes the operating history of its existing mines to derive estimates
of future operating costs and capital requirements, such estimates may differ
materially from actual operating results. The economic feasibility of any
individual project is based upon, among other things, the interpretation of
geological data obtained from drill holes and other sampling techniques,
feasibility studies (which derive estimates of cash operating costs based upon
anticipated tonnage and grades of ore to be mined and processed), the
configuration of the ore body, expected recovery rates of metals from the ore,
comparable facility and equipment costs, anticipated climatic conditions,
estimates of labor productivity and other factors. Such development projects
also are subject to the successful completion of final feasibility studies,
issuance of necessary permits and receipt of adequate financing.
As a result of the foregoing risks, among other things, expenditures on any and
all projects, actual production quantities and rates, and cash costs may be
materially and adversely affected and may differ materially from anticipated
expenditures, production quantities and rates, and costs, just as estimated
production dates may be delayed materially, in each case especially to the
extent development projects are involved. Any such events can materially and
adversely affect the Company's business, financial condition, results of
operations and cash flows.
Uncertainty of Reserve and Other Mineralization Estimates
There are numerous uncertainties in estimating proven and probable reserves and
other mineralization, including many factors beyond the control of the
Registrant. The estimation of reserves and other mineralization involves
subjective judgments about many relevant factors, and the accuracy of any such
estimate is a function of the quality of available data and of engineering and
geological interpretation and judgment. Results of drilling, testing and
Page 10 of 45
<PAGE>
production subsequent to the date of an estimate may justify revision of such
estimate. Assumptions about prices are subject to great uncertainty and gold and
silver prices have fluctuated widely in recent years. See "Gold and Silver Price
Volatility." No assurance can be given that the volume and grade of reserves
mined and processed and recovery rates will not be less than anticipated.
Declines in the market price of gold and related precious metals also may render
reserves or other mineralization containing relatively lower grades of
mineralization uneconomic to exploit. If the price realized by the Registrant
for its gold or silver bullion were to decline substantially below the price at
which ore reserves were calculated for a sustained period of time, the
Registrant potentially could experience reductions in reserves and asset
write-downs. Under certain circumstances, the Registrant may discontinue the
development of a project or mining at one or more of its properties. Further,
changes in operating and capital costs and other factors, including but not
limited to short-term operating factors such as the need for sequential
development of ore bodies and the processing of new or different ore grades and
ore types, may materially and adversely affect reserves.
Gold and Silver Price Volatility
The profitability of the Registrant's current operations is directly related and
sensitive to the market price of gold and silver. Gold and silver prices
fluctuate widely and are affected by numerous factors beyond the Registrant's
control, including expectations with respect to the rate of inflation, the
exchange rates of the dollar and other currencies, interest rates, forward
selling by producers, central bank sales and purchases of gold and silver,
production and cost levels in major gold-producing regions such as South Africa
and the former Soviet Union, global or regional political, economic or financial
situations and a number of other factors.
The current demand for, and supply of, gold and silver affect the prices of such
minerals, but not necessarily in the same manner as current demand and supply
affect the prices of other commodities. The potential supply of gold consists of
new mine production plus existing stocks of bullion and fabricated gold held by
governments, financial institutions, industrial organizations and individuals.
Since mine production in any single year constitutes a very small portion of the
total potential supply of gold, normal variations in current production do not
necessarily have a significant effect on the supply of gold or on its price. If
gold or silver prices should decline below the Registrant's cash costs of
production and remain at such levels for any sustained period, the Registrant
could determine that it is not economically feasible to continue commercial
production at any or all of its mines. Although the Registrant has a hedging
program in place to reduce the risk associated with gold and silver price
volatility, there is no assurance that the Company's hedging strategies will be
successful.
Page 11 of 44
<PAGE>
Exploration and Development
Exploration for gold and related precious metals is highly speculative in
nature, involves many risks and frequently is unsuccessful. There can be no
assurance that the Registrant's exploration efforts will result in the discovery
of significant gold or silver mineralization or that any mineralization
discovered will result in an increase of the Company's Proven or Probable Ore
Reserves. If Proven or Probable Ore Reserves are developed, it may take a number
of years and substantial expenditures from the initial phases of drilling until
production is possible, during which time the economic feasibility of production
may change. No assurance can be given that the Registrant's exploration programs
will result in new reserves or that the Registrant's development program will be
able to extend the life of the Registrant's existing mines.
Insurance and Mining Risks
The business of gold and silver mining is generally subject to a number of risks
and hazards, including environmental conditions, industrial accidents, labor
disputes, encountering unusual or unexpected geological conditions, ground or
slope failures, cave-ins, changes in the regulatory environment and natural
phenomena such as inclement weather conditions, floods, blizzards and
earthquakes. Such occurrences could result in damage to, or destruction of,
mineral properties or production facilities, personal injury or death,
environmental damage to properties or the properties of others, delays in
mining, monetary losses and possible legal liability. The Registrant's mine
operator, Emtec, maintains insurance against certain risks that are typical in
the gold mining industry and in amounts that the Registrant believes to be
reasonable, but which may not provide adequate coverage in certain unforeseen
circumstances. However, insurance against certain risks (including certain
liabilities for environmental pollution or other hazards as a result of
exploration and production) is not generally available to the Registrant or to
other companies within the industry on acceptable terms.
Competition
The Company operates in an industry that is characterized by intense competition
for resources, equipment and personnel. Some of the Company's principal
competitors are substantially larger, have substantially greater resources, and
expend considerably larger sums of capital than the Company for exploration,
rehabilitation and development.
ITEM 2. DESCRIPTION OF PROPERTY
The Registrant's executive offices are located in rented premises of
approximately 12,960 square feet at 4750 Kelso Creek Road, Weldon, California
93238. The leased facilities are known as the Weldon Research Center. They
include approximately 37.5 acres of chainlink fenced land, 12,960 square feet of
buildings, including a scale house, guardhouse, a 300' x 12" water well,
lab/shop, refinery buildings and domestic power. The Registrant has a five-year
Page 12 of 45
<PAGE>
lease on the premises at $3,000 per month rental renewable for like terms. The
Registrant considers the facilities adequate for current needs.
Evening Star Mine Group
Registrant owns eight unpatented mining claims located on Piute Mountain, Kern
County, California. Unpatented mining claims only give the Registrant possessory
title. Because title to unpatented mining claims is subject to inherent
uncertainties, it is difficult to determine conclusively ownership of such
claims. Since a substantial portion of all mineral exploration, development and
mining in the United States now occurs on unpatented mining claims, this
uncertainty is inherent in the mining industry. In addition, in order to retain
title to an unpatented mining claim, a claim holder must have met annual
assessment work requirements through September 1, 1992 and must have complied
with stringent state and federal regulations pertaining to the filing of
assessment work affidavits. Moreover, after September 1, 1992, the right to
locate or maintain a claim generally is conditional upon payment to the United
States of a maintenance fee of $100 per claim per year for each assessment year.
State law may, in some instances, still require performance of assessment work.
The present status of the Company's properties as unpatented mining claims
located on public lands of the U.S. allows the claimant the exclusive right to
mine and remove valuable minerals, such as precious and base metals and
industrial minerals, found therein, and also to use the surface of the land
solely for purposes related to mining and processing the mineral-bearing ores.
However, legal ownership of the land remains with the U.S. Accordingly, with an
unpatented claim, the U.S. retains many of the incidents of ownership of land,
the U.S. regulates use of the surface, and the Company remains at risk that the
claims may be forfeited either to the U.S. or to rival private claimants due to
failure to comply with statutory requirements as to location and maintenance of
the claims. If there exists a valuable deposit of locatable minerals (which is
the requirement for the unpatented claim to be valid in the first place), and
provided certain levels of work and improvements have been performed on an
unpatented mining claim, the Mining Law of 1872 authorizes claimants to then
seek to purchase the full title to the claim, thereby causing the claim to
become the private property of the claimant. Such full ownership expands the
claimant's permissible uses of the property (to any use authorized for private
property) and eliminates the need to comply with maintenance and reporting
requirements necessary to protect rights in an unpatented claim.
For the last several Congressional sessions, bills have been repeatedly
introduced in the U.S. Congress which would supplant or radically alter the
provisions of the Mining Law of 1872. As of December 31, 1995, no such bills
have passed, although a number of differing and sometimes conflicting bills are
now pending. If enacted, such legislation could substantially increase the cost
of holding unpatented mining claims and could impair the ability of companies to
develop mineral resources on unpatented mining claims. Under the terms of
certain proposed legislation, the ability of companies to obtain a patent on
unpatented mining claims would be nullified or substantially impaired. Moreover,
Page 13 of 44
<PAGE>
certain forms of such proposed legislation contain provisions for the payment of
royalties to the federal government in respect of production from unpatented
mining claims, which could adversely affect the potential for development of
such claims and the economics of operating existing mines on federal unpatented
mining claims. The Company's financial performance could therefore be affected
adversely by passage of such legislation. It is impossible to predict at this
point what any legislated royalties might be, but a potential three to four
percent gross royalty, assuming a gold price of $400 per ounce, would have an
approximated $12 to $16 per ounce impact on the Company's costs of production
from unpatented mining claims.
APT entered into a lease in July, 1995, with Sequoia Trust, which is controlled
by some of the officers and directors of the Registrant. See "Item 12. Certain
Relationships and Related Transactions." The lease terminates in July, 2000,
unless renewed by mutual consent of the parties, so long as minerals are being
mined, processed or marketed from the property on a continuous basis with no
cessation of operations for more than 120 consecutive days. APT is required to
pay $3,000 per month, plus a 12% royalty of the "gross value of metals and other
leased substances recovered from the refining of ores" from the property.
The leased properties consist of 57 acres and include three patented mining
claims. The Company plans to construct its main refinery and support buildings
on this land upon the successful completion of Phase I. One of the patented
mines was preliminarily explored by drilling eight 45-degree holes approximately
200 feet apart and to a depth of 700 feet. A commercial grade ore body was
encountered and estimated to be 17 to 36 feet wide. The Company intends to
redrill this area in order to reconfirm and more precisely estimate the size and
quantity of such ore body.
Also in July, 1995, APT leased from Sequoia Trust property in Weldon,
California, known as the Weldon Research Center, for $3,000 per month. William
M. Moreland, Chief Operating Officer of the Company, is a Trustee for Sequoia
Trust. The lease terminates in July, 2000, unless renewed under like terms by
mutual consent of the parties. The property consists of 12,960 square feet of
mill buildings, a laboratory, office, shops and refinery buildings,
approximately 37.5 acres of fenced land. The property also contains a 300-foot
water well, scale house, guardhouse and domestic power.
ITEM 3. LEGAL PROCEEDINGS
None.
Page 14 of 45
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to shareholders during the fourth quarter of the
fiscal year ended December 31, 1996.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock was inactive for from June 23, 1984 until September
22, 1997, when it began trading on the Bulletin Board Over-the-Counter Market.
The trading market is limited and sporadic and should not be deemed to
constitute an "established trading market".
The following table sets forth the range of Bid and Ask prices for the Common
Stock during the periods indicated, and represents inter-dealer prices, which do
not include retail mark-ups and mark-downs, or any commission to the
broker-dealer, and may not necessarily represent actual transactions.
1997 Bid Asked
Quarter ending March 31, 1997 $0.50 $1.75
(a) Holders:
The approximate number of holders of record of Common Shares, as of
March 31, 1997, was 743.
(b) Dividends:
The Company has not paid cash dividends on its common stock since its
inception. At the present time, the Company's anticipated working
capital requirements are such that it intends to follow a policy of
retaining any earnings in order to finance the development of its
business.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis should be read together with the financial
statements and notes thereto included elsewhere herein.
I. Gerant merged from its Chapter 11 proceeding in August 1996. Prior to that
date, the reorganization with Xplorer, S.A., Gerant had no significant
operations, cash flows, or changes in financial condition, and was inactive
since January 1, 1994. Legal fees incurred during the bankruptcy period are
presently being paid by the Company.
Page 15 of 44
<PAGE>
II. Plan of Operation
The Registrant is preparing for the construction of a Pilot Plant to
process both new and existing ore of the Evening Star Mine (the "Mine")
location. Upon the receipt of the capital, the Pilot Plant will commence
simultaneously with the Filing of the Form 10-KSB for the year ended December
31, 1996. The Pilot Plant will demonstrate the feasibility of extraction of the
precious metals contained within the ore.
The Pilot Plant should be in operation continually until the full
operating plant is completed and in operation.
III. Management's Discussion and Analysis of Financial Condition and Results of
Operations
The Registrant is a development stage enterprise and, as such, is
incurring expenses related to the development of the Mine and the preparation
for the beginning of the Pilot Plant. Funds for these purposes have been raised
through the sale of Forward Gold Contracts, sale of Industrial Bonds in Europe,
and the strategic placement of equity securities. These activities are necessary
to assure the funding of anticipated operating costs and the satisfaction of the
$1.2 million negative working capital.
It is not anticipated that income from the Pilot Plant will commence
before the end of the summer of 1997. As a result, it is essential for
management to continue its fund raising activities until this income source
commences and continuing afterwards until the full operation is in progress.
Registrant continues its efforts towards achieving a profitable operation
and, although management is confident of achieving that goal, Registrant cannot
assure its shareholders that it will be successful in operating a profitable
business.
Page 16 of 45
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
The following financial statements are included as a separate section following
the signature page to this Form 10-KSB/A and are incorporated herein by
reference:
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Auditor................................F-1
Consolidated Balance Sheet...................................F-2
Consolidated Statement of Operations for the year
ended December 31, 1996...................................F-3
Consolidated Statement of Shareholders' Equity for the
year ended December 31, 1996..............................F-4
Consolidated Statement of Cash Flows for the year
ended December 31, 1996...................................F-5
Notes to Financial Statements................................F-6
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
Page 17 of 44
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Name Age Position
- ------------------------ ---- ----------------------------------------------
Steven B. Mortensen 36 Chairman of the Board and Secretary
Thomas C. Roddy, PE. 44 Director, President and Chief Executive Officer
William M. Moreland 48 Chief Operating Officer and Director
Jon W. Bice 52 Director, Treasurer and Chief Financial Officer
Joyce J. Pellet 60 Director
Benjamin C. Rice 58 Director
Steven B. Mortensen has been Chairman of the Board and Secretary since July,
1996. Mr. Mortensen majored in computer science and math at Brigham Young
University. Mr. Mortensen is also responsible for investor relations for the
Company and its subsidiaries, including overseeing its European operations. Mr.
Mortensen served as Trustee of Atlantic Pacific Trust and as Manager of Atlantic
Pacific Trust, LLC. Mr. Mortensen's experience is in real estate, mining
development, and public relations. He is also co-trustee of Rocky Mountain
Trust. In that capacity, he is solely responsible for asset management and all
investments. Previously, in 1991, Mr. Mortensen was senior vice president of the
"B" paper division of Trump Mortgage Group Inc. Mr. Mortensen's other past
positions include: President of North Star Industries, a mining, residential and
commercial contractor; President and owner of Hillcrest Development and Land, a
land and mine development company; Sales and Marketing Director of Mortensen
Construction and Lifestyle Homes, Inc.
Thomas C. Roddy has been President, Chief Executive Officer and a director since
July, 1996. Mr. Roddy is a registered civil engineer in the State of California.
He received a B.S. in civil engineering from California State University, Fresno
Page 18 of 45
<PAGE>
in 1978. From 1978 through 1985, Mr. Roddy was a senior engineer for Boyle
Engineering Corporation, Bakersfield, California. Since 1985, Mr. Roddy has been
a consulting engineer in Bakersfield, California. His engineering background is
extensive and includes experience as project manager/engineer for various mining
projects in California and Nevada, engineering superintendent for construction
of the Almond Power Plant near Modesto, California, extensive experience in
road, sewer water, and drainage system design, and engineering services related
to Santa Fe Energy Company and Shell Western Exploration and Production Co. for
the construction of enhanced recovery facilities. Mr. Roddy is a former member
of the Kern County Air Pollution Control District Hearing Board.
William M. Moreland has been Chief Operating Officer and a director of the
Company since April, 1997, and a consultant to the company since August, 1996.
Mr. Moreland has been in the mining business since he was a child, working with
his father and grandfather on the Moreland Mines. He has been a consultant to
several mining companies on various mining projects, including platinum, silver
and gold. From 1971 through 1985, Mr. Moreland was the owner of a commercial and
residential contracting company and held a Class A General Engineering License
and Class B General Building License from the State of California. Mr. Moreland
has constructed processing mills and has designed a proposed Pilot Mill for the
Company's Evening Star Mine. Mr. Moreland is a Co-Manager of Emtec, LLC, the
mine operator of the Evening Star Mine, and he is a Trustee of the Sequoia Trust
and a Co-Manager of Atlantic Pacific Trust, LLC, a majority-owned subsidiary of
the Company. Mr. Moreland's over 40 years of experience in assay procedures,
precious metals refining, mine development and production is a valuable asset of
the Company.
Jon W. Bice has operated his own accounting and tax business since 1971. He
prepares over 600 individual tax returns, 40 corporate returns, and 15
partnership returns per year. His tax practice is national with clients in 29
states, ranging from shall, individual businesses to $100 million multi-national
corporations. Mr. Bice is licensed to practice before the Internal Revenue
Service and the United States Tax Court on tax matters, and performs an
estimated annual average of 100 to 125 tax and examination audits. Mr. Bice has
been the CFO for other corporations in the past whose sales ranged from $36
million per year to $100 million in international sales.
Joyce J. Pellet presently serves as trustee of Bedrock Trust, which owns and
manages several rental properties. She also actively serves as trustee for
Sequoia Trust and was co-trustee of Atlantic Pacific Trust. Ms. Pellet presently
serves as one of the Managers of EMTEC, LLC, which is the mine operator for
Atlantic Pacific Trust's mining properties.
Benjamin C. Rice is an attorney licensed to practice in the State of Idaho. He
received a B.S. in psychology and economics from Brigham Young University in
1964 and a Juris Doctorate degree from Golden Gate university in 1971. He has
been engaged in the private practice of law since
Page 19 of 44
<PAGE>
1988, specializing in constitutional law, trust, tax law, asset protection and
mining law. He serves as corporate counsel for several corporations and trusts,
including Atlantic Pacific Trust and Emtec, Inc. Mr. Rice has been a law
professor at National University and has served as general counsel for an
operating mining company, Toone- Mitchell Mining Company.
Compliance with Section 16(a) of the Securities Exchange Act of 1934.
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission ("SEC") initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the
Registrant. Officers, directors and greater than ten percent stockholders are
required by SEC regulation to furnish the Registrant and Exchange with copies of
all Section 26(a) forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Form 5 was
required for such persons, the Company believes that, other than as disclosed
below, during the fiscal year ended December 31, 1996, all filing requirements
applicable to its officers, directors and greater than ten percent beneficial
owners were complied with.
All of the officers, directors and ten percent shareholders , including Messrs.
Moreland, Roddy, Mortensen, Bice and Rice, Ms. Pellet, and Atlantic Pacific
Trust, LLC, failed to report timely on Form 3's when they had become directors,
officers and ten percent shareholders of the Registrant at the confirmation by
the Bankruptcy Court of the Third Amended Plan in August 1996. Procedures and
controls have been instituted to assure future compliance with Section 16(a) of
the Exchange Act.
ITEM 10. EXECUTIVE COMPENSATION
No executive officer of the Company earned in excess of $10,000 during the
fiscal year ended December 31, 1996. All executive officers as a group (three
persons) received cash compensation of approximately $30,000 during the fiscal
year ended December 31, 1996. Beginning January 1, 1997, the Company has agreed
to pay to Messrs. Mortensen, Roddy, Moreland and Bice an annual salary of
$60,000 for each person. Bonuses, based on sales and revenues, may be paid to
such employees at the discretion of the Board of Directors. There are no written
employment agreements with any employee of the Company.
1997 Stock Incentive Plan
On January 24, 1997, the Company's Board of Directors approved a 1997 Stock
Incentive Plan (the "1997 Plan"). The purpose of the 1997 Plan is to enable the
Company to recruit and retain selected officers and other employees by providing
equity participation in the Company to such individuals. Under the 1997 Plan,
Page 20 of 45
<PAGE>
regular salaried employees, including directors who are full time employees, and
non-employee directors, may be granted options exercisable at not less than 100%
of the fair value of the share at the date of grant. The exercise price of any
option granted to an optionee who owns stock possessing more than 10% of the
voting power of all classes of stock of the Company must be 110% of the fair
market value of the Common Stock on the date of grant and the duration may not
exceed five years. Since there is no public market for the Company's shares, the
fair market value has been determined from time to time by the Board of
Directors. The duration of options may not exceed ten years. Options under the
Plan are nonassignable, except in the case of death and may be exercised only
while the optionee is employed by the Company, said employment shall include a
leave of absence, with the consent of the Company, but shall not exceed three
months, or death. The purchase price and number of shares that may be purchased
upon exercise of options are subject to adjustment in certain cases, including
stock splits, recapitalizations and reorganizations.
The amount of options granted and to whom, are determined by the Board of
Directors at their discretion. There are no specific criteria, performance
formulas or measures.
Under the 1997 Plan, of the 1,500,000 shares available for grant, 600,000 were
granted in January 1997, of which 550,000 were granted to officers and
directors.
The following table sets forth certain information with respect to all qualified
stock options held as of May 30, 1997 by the Company's executive officers under
the 1997 Plan. All options are exercisable at a price equal to fair market value
on date of grant and terminate 10 years from date of grant. None of these
options has been exercised.
Number of Exercise Expiration
Name Options Price/Share Date
------------------- --------- ----------- ----------
Steven B. Mortensen 150,000 $.50 *
William M. Moreland 150,000 .50 *
Thomas C. Roddy 75,000 .50 *
Jon W. Bice 75,000 .50 *
All executive officers
as a group (4 persons) 450,000 .50 *
__________________________
* All options expire on January 30, 2007.
Non-Qualified Stock Options
On January 31, 1997, 80,000 non-qualified stock options were granted to two
persons in consideration for services rendered to the Company. The exercise
price for all options is $.50 per share. None of these options has been
exercised. All of these options expire on January 30, 2007.
Page 21 of 44
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of May 30, 1997, with
respect to the beneficial ownership of the Registrant's Common Stock, par value
$.001 per share, by holders of more than five percent of the Registrant's Common
Stock, by each director and executive officer of the Registrant, and by all
directors and officers of the Registrant as a group.
Name and Address Number of Shares Percent
of Beneficial Owner Beneficially Owned(1) of Class(2)
- ------------------- -------------------- ----------
Steven B. Mortensen 425,000 (3) 2.4
Thomas C. Roddy 50,000 (4) *
William M. Moreland 50,000 (5) *
Jon W. Bice 70,000 (6) *
Joyce J. Pellet 35,000 (5) *
Benjamin C. Rice 10,000 (7) *
Compania Comercial Atlantis, S.A. 1,000,000 (8) 5.4
____________________
* Less than one percent (1%).
(1) Unless otherwise indicated, all shares are beneficially owned and the
sole voting and investment power is held by the person named in the
table above and the address for each beneficial holder is in care of
the Company.
(2) Based upon 18,782,445 shares of Common Stock outstanding.
(3) Does not include 125,000 shares in the Hughes Irrevocable Trust for the
benefit of Mr. Mortensen's wife. Mr. Mortensen disclaims any beneficial
interest in these shares. Does not include options to purchase 150,000
shares of the Company's common stock.
(4) Does not include options to purchase 75,000 shares of the Company's
common stock.
(5) Does not include 750,000 shares held by the Sequoia Irrevocable Trust
of which Mr. Moreland's and Mrs. Pellet's adult children are the
beneficiaries. Mr. Moreland and Mrs. Pellet are the trustees of the
trust and both disclaim any beneficial interest in these shares.
Furthermore, does not include options granted to Mr. Moreland to
purchase 150,000 shares of the Company's common stock nor options
granted to Mrs. Pellet to purchase 50,000 shares of the Company's
common stock.
(6) Does not include options to purchase 75,000 shares of the Company's
common stock.
Page 22 of 45
<PAGE>
(7) Does not include options to purchase 50,000 shares of the Company's
common stock.
(8) The address for this beneficial holder is P.O. Box 5747-1000, San Jose,
Costa Rica, C.A.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On July 15, 1995, the Company's majority-owned subsidiary entered into the
following agreements:
a) A lease from Sequoia Trust of approximately 57 acres of land in Kern
County, California, containing three patented mining claims. The Company intends
to explore, develop and operate mines and extract, sell and ship any precious
metals discovered on the property. The lease terminates on July 15, 2000, unless
renewed for like terms by mutual consent. The Company pays $3,000 per month and
is obligated to pay 12% of the gross value of metals and other substances
recovered from refining of ore from the property.
b) A lease from Sequoia Trust of the Weldon Research Center, Weldon,
California, consisting of several buildings, including a laboratory, offices,
repair shops and storage facilities. The lease terminates on July 15, 2000,
unless renewed for like terms by mutual consent. The Company pays lease payments
of $3,000 per month. The Trustees of the Sequoia Trust are William M. Moreland,
an officer and director of the Company, and Joyce J. Pellet, a director of the
Company. The beneficiaries of the Trust are the children of Mr. Moreland and the
children of Mrs. Pellet. The children are all over 21 years old and do not live
with either Mr. Moreland or Mrs. Pellet and both Mr. Moreland and Mrs. Pellet
disclaim any beneficial interest in the Sequoia Trust.
c) The Company entered into an Operating Agreement with Emtec, LLC
("Emtec") wherein Emtec will perform all exploration, development and production
services for the Evening Star Mine. Emtec will be the operator for all mine
operations. The Company has agreed to pay to Emtec, on a monthly basis,
reimbursement of all expenses and costs of Emtec related to the Evening Star
mining operations plus 18%. From July 15, 1995 through March 31, 1997, the
Company has paid Emtec $462,143.
Mr. Moreland, an officer and director of the Company, and Mrs. Pellet, a
director of the Company, are the Co-Managers of Emtec, LLC. Both Mr. Moreland
and Mrs. Pellet disclaim any beneficial ownership in Emtec, LLC.
In each of the transactions described in the preceding paragraphs in which the
Company purchased goods or services from an affiliate, the Company believes that
the terms of the transaction were no less favorable to it than those that could
have been obtained in a comparable transaction with an unrelated party. Any
future transactions between the Company and its officers, directors and
Page 23 of 44
<PAGE>
affiliated parties will be subject to approval by a majority of the directors of
the Company, including a majority of the disinterested directors.
Pursuant to the Company's Third Amended Plan of Reorganization filed with the
Bankruptcy Court in July, 1996 (the "Plan"), Compania Comercial Atlantis, S.A.
("Compania") exchanged 417,200 APT Units owned by Compania for 1,043,000 shares
of the Company's Series A Convertible Preferred Stock (the "Preferred Stock").
In December, 1996, the Company exchanged an additional 237,550 shares of its
Preferred Stock for 189,960 APT Units. The Preferred Stock is convertible,
commencing October 1, 2002, into ten shares of the Company's Common Stock for
each share of Preferred Stock. Dividends are payable quarterly at a monthly rate
of one percent of the Preferred Stock held. The dividends are payable in Common
Stock of the Company on the basis of ten shares of Common Stock for each share
of Preferred Stock. In addition, the holder of the Preferred Stock could, upon
written notice, have any dividends due payable in additional Preferred Stock
instead of Common Stock.
On December 11, 1996, the Company agreed to issue 1,000,000 shares of its Common
Stock to Compania and Compania waived its right to receive any dividends, past,
present or future, associated with the Preferred Stock. As of December 11, 1996,
no dividends had been paid to Compania.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
The following documents are filed as part of this report:
a. Listing of Exhibits
2.1 (1) Disclosure Statement For Debtor's Third Amended Plan of
Reorganization.
2.2 (1) Order Confirming Debtor's Third Amended Plan of
Reorganization.
2.3 (2) Agreement and Plan of Reorganization between Atlantic Pacific
Trust and its Beneficiaries and Atlantic Pacific Trust, LLC.,
dated December 26, 1996.
3.1(a) (2) Articles of Incorporation and Amendments thereto of
Registrant.
3.1(b) (2) Articles of Organization of Atlantic Pacific Trust, LLC and
Amendment thereto.
3.2 (2) By-Laws of Registrant.
Page 24 of 45
<PAGE>
4.1 (2) Certificate of Designation of Series A Convertible Preferred
Stock of Registrant.
4.1(a) (2) Waiver of Preferred Stockholder between Registrant and
Compania Comercial Atlantis, S.A. dated December 11, 1996.
4.2 (2) $450,000 10% Subordinated Convertible Note dated September
25,1996 between Registrant and Gardner Investments, Inc.
(lender).
4.3 (2) Warrant Certificate for Common Stock issued to shareholders of
the Registrant pursuant to Third Amended Plan of
Reorganization approved by the United States Bankruptcy Court
on August 5, 1996.
4.4 (2) "B" Warrant Agreement between Registrant and Atlantic Pacific
Trust dated August 5, 1996.
4.5 (2) "C" Warrant Agreement between Registrant and Atlantic Pacific
Trust dated August 5, 1996.
10.1 (2) Lease Agreement between Sequoia Trust and Atlantic Pacific
Trust dated July 15, 1995.
10.2 (2) Lease Agreement between Sequoia Trust and Atlantic Pacific
Trust dated July 15, 1995.
10.3 (2) Operating Agreement between Atlantic Pacific Trust and Emtec,
LLC dated July 25, 1995.
10.4 (2) Assignment of Assets by Atlantic Pacific Trust to Benjamin C.
Rice, Trustee dated October 25, 1995.
10.5 (2) Bill of Sale between Sequoia Trust and Atlantic Pacific Trust
dated July 15, 1995.
10.6 (2) Regulation "S" Stock Purchase Agreement between Stonehill
Investments, Ltd. and Registrant.
10.7 (2) Security Agreement between Plaza Realty One Limited
Partnership and Registrant dated August 19, 1994, and $400,000
Promissory Note between Plaza Realty One Limited Partnership
and Registrant dated August 19, 1994.
10.8 1997 Stock Incentive Plan.
Page 25 of 44
<PAGE>
_____________________
(1) Filed as exhibits to Registrant's Form 8K which was filed with
the Commission on September 12, 1996, and incorporated herein
by this reference.
(2) Filed as exhibits to Registrant's Form 10-KSB which was filed
on June 3, 1997 and incorporated herein by this reference.
b. Reports on Form 8-K
A report on Form 8-K was filed by the Registrant on November 15, 1996.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
XPLORER, S.A.
Date: January, 1998 By:/s/ Thomas C. Roddy
----------------------
Thomas C. Roddy
President
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
Signature Title Date
- ------------------------ -------------------------- --------------------
/s/ Steven B. Mortensen Chairman of the Board January 19, 1998
- ------------------------ and Secretary
Steven B. Mortensen
/s/ Thomas C. Roddy President, Chief Executive January 19, 1998
- ----------------------- Officer and Director
Thomas C. Roddy
/s/ William M. Moreland Chief Operating Officer January 19, 1998
- ----------------------- and Director
William M. Moreland
/s/ Jon W. Bice Treasurer, Chief Financial January 19, 1998
- ----------------------- Officer and Director
Jon W. Bice
Page 26 of 45
<PAGE>
/s/ Joyce J. Pellet Director January 19, 1998
- -----------------------
Joyce J. Pellet
/s/ Benjamin C. Rice Director January 19, 1998
- -----------------------
Benjamin C. Rice
Page 27 of 44
<PAGE>
XPLORER, S.A.
DECEMBER 31, 1996
Page 28 of 45
<PAGE>
XPLORER, S.A.
DECEMBER 31, 1996
Table of Contents
Page
Independent Auditors' Report ...............................................F-1
Consolidated Balance Sheet .................................................F-2
Consolidated Statement of Operations .......................................F-3
Consolidated Statement of Stockholder's Equity .............................F-4
Consolidated Statement of Cash Flows .......................................F-5
Notes to Consolidated Financial Statements ............................. F-6-14
Page 29 of 44
<PAGE>
JAY J. SHAPIRO, C.P.A.
A Professional Corporation
16501 Ventura Boulevard
Suite 650
Encino, California 91436
Tel. (818) 990-4878 Fax (818) 990-4944
INDEPENDENT AUDITORS' REPORT
The Board of Directors of XPLORER, S.A.:
We have audited the accompanying consolidated balance sheet of XPLORER,
S.A. (the "Company"), a development stage enterprise, as of December 31, 1996
and 1995, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the two years ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of December 31, 1996, and the results of its operations and its cash flows
for each of the two years ended December 31, 1996, in conformity with generally
accepted accounting principles.
The financial statements reflect a reverse acquisition transaction and
the acquirer had insignificant operation prior to July 1, 1996.
As of December 31, 1996, the Company has significant negative working
capital and exposure to financial uncertainties (See Notes 1 and 2).
December 30, 1997
JAY J. SHAPIRO, C.P.A.
a professional corporation
Page 30 of 45
F-1
<PAGE>
XPLORER, S.A.
(a development stage enterprise)
CONSOLIDATED BALANCE SHEET
As of December 31
Assets 1996 1995
----------- ------------
Current Assets:
Cash $ 166,000 $ 100,000
Note receivable (Note 5) 16,000
Marketable securities (Note 4) 226,400
Prepaid commissions 210,000
----------- -----------
Total Current Assets 618,400 100,000
Property, plant & equipment - net
(Notes 6, 8 & 11) 3,404,400 2,830,300
Other investments (Notes 7 and 10) 1,019,000 500,000
----------- -----------
Total Assets $ 5,041,800 $ 3,430,300
=========== ===========
Liabilities and Shareholders' Equity
Current Liabilities:
Gold contracts (Note 11) 273,000 390,000
Zero-coupon bonds - Current 915,000 25,000
Related party payable (Note 12) 149,000 50,000
Note payable (Notes 7 and 10) 450,000
Payroll obligations 3,200
Other accrued expenses 38,000 12,000
----------- -----------
Total Current Liabilities 1,828,200 477,000
Accrued legal fees (Note 9) 147,000
Long-term zero-coupon bonds 552,700 87,500
Minority interest in consolidated
subsidiary (Note 8) 852,000 1,175,000
----------- -----------
3,379,900 1,739,500
Page 31 of 44
F-2
<PAGE>
XPLORER, S.A.
(a development stage enterprise)
CONSOLIDATED BALANCE SHEET (Cont'd)
As of December 31
1996 1995
----------- ------------
Commitments and contingencies
(Notes 2, 7, 8, 10, 11 & 12)
Shareholders' Equity:
Preferred stock, par value $0.001;
authorized 15,000,000 shares;
convertible beginning in 2006;
1,280,550 shares issued and
outstanding 1,300
Common stock subscribed 1,000
Common stock, $0.001 par value; authorized
60,000,000 shares; 18,554,000 and 964,000
shares issued and outstanding in 1996 and 1995 17,600 1,000
Capital surplus 2,546,000 1,793,800
Deficit accumulated during the development stage (904,000) (104,000)
----------- -----------
Total shareholders' equity 1,661,900 1,690,800
----------- -----------
Total Liabilities and Shareholders' Equity $ 5,041,800 $ 3,430,300
=========== ===========
The notes to the financial statements are an integral part of these statements
Page 32 of 45
F-3
<PAGE>
XPLORER, S.A. (a development stage enterprise)
CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended December 31, 1996
1996 1995
------------ ------------
Revenue (Note 1) $ 0 $ 0
------------ ------------
Expenses:
Compensation ($ 128,600)
Professional fees (113,500)
Commissions (450,900) (90,000)
Interest (171,700) (30,000)
Administrative and depreciation (207,000) (40,000)
------------ ------------
Total (1,071,700) (160,000)
Other income (expense):
Gain on marketable securities-net 37,000
Interest income 48,400
Loss on settlement of gold contracts (106,000)
------------
Total (20,600)
Net Loss Before Minority Interest
in Loss of Company (1,092,300) (160,000)
Minority Interest in Loss of Company 340,300 56,000
------------ ------------
Net Loss ($ 752,000) (104,000)
============ ============
Net Loss per Share ($ 0.05) ($ 0.11)
============ ============
Weighted Average Number of Shares 16,800,000 964,000
============ ============
The notes to the financial statements
are an integral part of these statements
Page 33 of 44
F-4
<PAGE>
XPLORER, S.A. (a development stage enterprise)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Notes 1, 2,3, and 8)
<TABLE>
<CAPTION>
Deficit
Accumulated
Common stock Preferred Stock During
($.001 par) ($.001 par) Capital Development
Shares Amount Shares Amount Surplus Stage Total
------------ --------- --------- ------ ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance , January 1, 1995 964,000 $1,000 $1,793,800 $1,794,800
Net Loss for period ($104,000) (104,000)
------------ --------- --------- ------ ---------- --------- ----------
Balance, December 31, 1995 964,000 $1,000 $1,793,800 $104,000 $1,690,800
------------ --------- --------- ------ ---------- --------- ----------
Balance, January 1, 1996 964,000 1,000 $1,793,800 (104,000) $1,690,800
Balance, August 15, 1996
merger with Gerant
pursuant to the Plan
(August, 1996) 14,639,000 $14,600 1,043,000 $1,000 252,800 52,000 320,400
Stock issued to special
creditors pursuant to the
Plan (September, 1996) 996,000 1,000 98,600 $99,600
Preferred stock issuance
to Atlantic beneficiary
for 189,960 LLC's
(December, 1996) 237,550 300 207,300 207,600
Dividend waiver
on preferred stock
(December 1996) 1,000,000 1,000 99,000 (100,000)
Stock issued to employees
and consultants for
professional services
(December, 1996) 955,000 1,000 94,500 95,500
Net loss for period (752,000) (752,000)
------------ --------- --------- ------ ---------- --------- ----------
Balance, December 31, 1996 18,554,000 $18,600 1,280,550 $1,300 $2,546,000 ($904,000) $1,661,900
============ ========= ========= ====== ========== ========= ==========
</TABLE>
The notes to the financial statements are an integral part of these statements
Page 34 of 45
F-5
<PAGE>
XPLORER, S.A. (a development state enterprise)
CONSOLIDATED STATEMENT OF CASH FLOWS
1996 1995
----------- -----------
Net loss ($752,000) ($104,000)
Adjustment to net cash used by operations:
Minority interest in net loss of Company (340,300) (56,000)
Depreciation and amortization 181,900
Accretion of interest 160,400
Gain on marketable securities (37,000)
Accrued expenses and other liabilities 40,200 60,000
Related party payable 149,000
Prepaid commissions (210,000)
Other 24,500
----------- -----------
Total adjustments (31,300) 4,000
----------- -----------
Net cash used by operations (783,300) (100,000)
Financing activities:
Sale of Atlantic units for cash 458,300
Proceeds from sale of investment contracts 1,375,000 200,000
Repayment of gold contracts (325,000)
Note payable 450,000
----------- -----------
Net cash provided by financing activities 1,958,300 200,000
----------- -----------
Investing activities:
Computer equipment purchases (8,000)
Mining property expenditures (527,000)
Acquisition of marketable securities (1,130,000)
Proceeds from marketable securities 911,000
Gerant creditor expenditures (355,000)
----------- -----------
Net cash used by Investing Activities (1,109,000) 0
----------- -----------
Increase in cash 66,000 100,000
Cash - Beginning 100,000 0
----------- -----------
Cash - Ending $166,000 $100,000
=========== ===========
Supplemental cash flow information:
Income taxes paid 800 0
=========== ===========
Interest paid $11,300 $0
=========== ===========
Atlantic exchanged 110,000 LLC units for commercial properties ($500,000 value)
and professional services. The Company issued 1,995,000 shares of common stock
for compensation and a preferred stock dividend.
The notes to the financial statements are an integral part of these statements
Page 35 of 44
F-6
<PAGE>
XPLORER, S.A. (a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended December 31, 1996
Note 1 Organization and Presentation:
XPLORER, S.A., the "Company" (successor to Gerant Industries, Inc.) was
organized by adoption of amended and restated Articles of Incorporation
dated July 5, 1996 which were filed with the office of the Secretary of
State of Nevada on August 15, 1996.
Gerant Industries, Inc. ("Gerant") filed a petition for reorganization
under Chapter 11 of the United States Bankruptcy Court (the "Court")
for the Central District of California on March 1, 1994. On July 24,
1996 the Court confirmed Gerant's Third Amended Plan of Reorganization
(the "Plan"). The Plan approved the amendment of the Articles of
Incorporation and By-laws, change of corporate name, authorization of
common and preferred shares of stock, payment of claims and issuance of
stock by the successors to this debtor-in-possession, XPLORER, S.A. The
Company was to issue 16,500,000 shares of common stock and 1,043,000
shares of preferred stock.
The historical determinable value in accordance with generally accepted
accounting principles was $320,000 and the Company accounted for the
transaction as a reverse acquisition.
The Company is a development stage enterprise and has not achieved its
intended operations or related revenue as of this date.
The Company, a development stage enterprise, anticipates obtaining
sufficient cash resources in 1997 from the sale of investment
contracts, warrant exercise, operations, or private placement of equity
securities. Such proceeds are necessary to assure the funding of
anticipated operating costs and satisfaction of $1.2 million in
negative working capital as of December 31, 1996.
Presentation:
The Company intends to engage in the development of natural resource
properties. As of 12/31/96 and 12/31/95 the Company does not have any
operating properties and is a development stage enterprise owning 59%
of Atlantic Pacific Trust, L.L.C. and its wholly-owned subsidiary
Atlantic-Pacific Finanzprodukte, GmbH as of December 31, 1996. Such
presentation has been reflected as of December 31, 1995 for purposes of
accounting for the Gerant transaction as a reverse acquisition. The
accounts of this entity, which made a $355,000 loan to Gerant as part
of the Plan, are included in these consolidated financial statements
and all significant inter-company transactions have been eliminated.
The loan was converted to common stock special units of the
Company (Note 8).
Page 36 of 45
F-7
<PAGE>
XPLORER, S.A. (a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended December 31, 1996
For purposes of financial reporting, Xplorer S.A. is treated as the
purchaser in a reverse acquisition of Gerant (See Note 3) and
accordingly, the 1995 financial statements reflect the Company on the
same basis.
Gerant had net assets of approximately $52,000 (Note3) and
insignificant operations from January 1, 1994 to August 15, 1996. The
quasi-reorganization of this entity resulted in retained earnings of
-0- as of January 1,1996.
Note 2 Summary of Significant Accounting Policies:
Mining Properties:
Mining properties are reflected in property, plant, and equipment at
cost of acquisition and development. Costs include efforts to remove
ore and waste, exploration, development of new ore bodies and defining
further mineralization in existing ore bodies. These costs are deferred
and will be charged to operating costs utilizing the unit-of-production
method in the period in which commercial production occurs.
When a property is identified as having development potential, the
costs of engineering, contract labor, financing, and professional fees
related to development are capitalized as they are incurred. If a
project is determined not to be economically feasible, unrecoverable
costs are expensed in the year in which the determination is made.
Mining properties are reflected at net realizable value based on the
Company's ability to generate future value.
Revenue Recognition:
Revenue is recognized when title to delivered gold or other precious
metals passes to the buyer.
Reporting Currency:
While the Company has significant financing transactions denominated in
German currency, its operations are located in the U.S. Accordingly,
all financial information regarding these transactions is translated
into U.S. dollars and no material transaction effect exists at December
31, 1996.
Loss Per Share:
The loss per share is calculated using the weighted average number of
shares outstanding. Warrants outstanding are anti-dilutive and are not
included.
Page 37 of 44
F-8
<PAGE>
XPLORER, S.A. (a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended December 31, 1996
Property, Plant & Equipment and Depreciation:
All property, plant and equipment is stated at cost and depreciated on
a straight-line basis over individual useful lives - three years
(computers), five years (mining equipment), and units-of- production
based upon proven and probable reserves once mining property is at the
operational level.
Financial Uncertainties:
The Company is in the development stage and has experienced a net loss
of $752,000. The loss is principally due to commissions and interest
associated with the 1996 German financing. There is no assurance that
commercial quantities of mineral resources can be developed and sold in
a profitable market. Also, mining production could be delayed and
uninsurable risks could be incurred (See Note 9).
The Company's profitability is subject to change in gold prices and
exchange rates. To reduce the impact of such changes, the Company locks
in the future value of certain of these items through hedging
transactions. These transactions are accomplished through the use of
financial instruments, the value of which is derived from movements in
the underlying gold prices, the Company's actual production, or
exchange rates.
The Company intends to engage in financial instruments to reduce the
financial impact caused by fluctuations in the exchange rate of U.S.
dollars to German Deutsche Mark liabilities.
The carrying values of investment contracts involving gold settlement
are re-measured using the market value of gold at the balance sheet
date($369 per troy ounce). The price of gold has decreased as of the
report date.
Income Taxes:
XPLORER, S.A. and its predecessor company have a substantial net
operating loss of an uncertain amount as of December 31, 1996. Prior
year tax returns are now being prepared.
Common Stock Issuance:
Shares issued to Gerant special creditors, employees, consultants, and
preferred shareholder of the Company are valued at the nominal value of
$.10 per share. Common stock Units include one share of stock and a
warrant to acquire an additional share at 70% of market value.
Use of Estimates:
The preparation of financial statements in conformity with generally
Page 38 of 45
F-9
<PAGE>
XPLORER, S.A. (a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended December 31, 1996
Note 2 Summary of Significant Accounting Policies (cont'd)
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Note 3 Reverse Acquisition:
Gerant changed its corporate name to XPLORER, S.A pursuant to an
exchange of stock and the provisions outlined in the Plan.
The Gerant's balance sheet prior to the execution of the Plan and
reorganization with newly-formed XPLORER, S.A. was:
$000's
------
Cash (Note 8) 335
Other current assets 17
----
352
----
Net fixed assets 3
Investments 500
----
Total Assets $855
Current liabilities (298)
Pre-petition liabilities (150)
Atlantic advance (Note 8) (355)
----
Total liabilities (803)
----
Net Assets $52
====
Under the Plan, the Company would realize the assets of Gerant and
assume the liabilities at Gerant basis, and issue common and preferred
stock in exchange for 1,005,000 units of Atlantic equity held by the
Company. Such units had a nominal book value of $0.32. These
transactions created a valuation for the Company's new common and
preferred stock issuance of $320,000.
Note 4 Marketable Securities:
The amounts disclosed below represent marketable securities of the
Company. All securities have been classified as "trading".
Page 39 of 44
F-10
<PAGE>
XPLORER, S.A. (a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended December 31, 1996
Note 4 Marketable Securities (cont'd)
Cost Fair Value
--------- ----------
Equity securities $211,400 $243,900
Options - equity securities (15,000) (17,500)
--------- ----------
$196,400 $226,400
========= ==========
At December 31, 1996, gross unrealized gains were $30,000 and realized
gains were $7,000. Most options are covered call positions thereby
limiting any market risk to the Company.
The Company does not use derivatives financial instruments for
speculative purposes. The Company enters into gold equity investments
to manage exposure to changes in gold prices. Such agreements are used
to participate in a rising gold price and the Company's undelivered
commitments.
Note 5 Note Receivable:
SYM-TEK filed Chapter 11 bankruptcy proceedings with Gerant as a
creditor. The amount of $16,000 was received on January 23, 1997 and
used to pay legal obligations of Gerant's bankruptcy proceeding.
Note 6 Property, Plant and Equipment:
Accumulated Net Book
Cost Depreciation Value
---------- ------------ -----------
Computer equipment $11,100 ($1,900) $9,200
Development costs -
Evening Star 2,666,000 2,666,000
Mining equipment -
Evening Star 909,200 (180,000) 729,200
---------- ----------- -----------
$3,586,300 ($181,900) $3,404,400
========== =========== ===========
The Company's majority-owned subsidiary (Note 8) owns eight claims
known as the Evening Star Mine located in Piute Mountain, Kern County,
California. Most of the development costs for Evening Star Mines are
from related parties (Note 13).
Page 40 of 45
F-11
<PAGE>
XPLORER, S.A. (a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended December 31, 1996
Note 7 Other Investments:
The Company holds a $500,000 full recourse promissory note at 8%
interest per annum, payable monthly and principal due August 18, 1997.
This note is secured by 500,000 Class C Units of United Realty Group
Limited Partnership redeemable by issuer at $1.00 per unit in August
1997 and 75% tenant in common interest in the net proceeds from the
Southwood Plaza Shopping Center in Charlotte, North Carolina. The
property presently generates positive cash flow. However, the Company
has elected not to reflect a $400,000 non-recourse promissory note
secured only by 400,000 units of United Realty Group Partnership.
Interest on the $500,000 note of $3,333 has been received on a monthly
basis during 1996. Atlantic owns 100% of the common stock of a company
that has two investments in commercial property located in Bakersfield,
California. The net realizable value of this investment is $500,000 as
of December 31, 1996.
Atlantic owns 466,000 shares of XPLORER, S.A. This investment is 59%
eliminated in consolidated financial statements and reflected at a
nominal value of $.10 per share or $19,000.
Note 8 Atlantic Pacific Trust, L.L.C.:
Atlantic Pacific Trust, L.L.C. ("Atlantic"), a Nevada limited liability
company, is a natural resource company owned by XPLORER and three of
the Company's shareholders (the "Minority Interest"). Such corporation
is the successor to Atlantic Pacific Trust ("APT") and is the legal
owner of certain mining properties located in Kern County, California.
These mining properties (approximately 117 mining claims) were held by
a trust controlled by William M. Moreland ("Moreland"), and transferred
to a new entity, North Star Industries ("North"). North was 30% owned
by Moreland, 30% owned by Gardner, and 40% owned by Compania Comerciale
Atlantis, S.A., a Costa Rican entity ("CCA"). The claims were
eventually divided into four separate trusts. One of these trusts,
Nevada Trust, which owned eight claims known as the "Evening Star
Mine", was acquired at cost by APT.
APT was funded by sale of investment contracts, precious metal forward
contracts, and equity units ("LLC"). The Company owns 1,254,960 LLC
units as of December 31, 1996 (59%).
APT made a loan to the Company for $355,000 that was converted to
Company special units (one share of common stock and one B warrant and
C warrant each exercisable within five years at $2.00 and $3.00 per
share, respectively) and paid a Gerant creditor $110,000 in exchange
for 111,667 shares of the Company's common stock These funds were used
Page 41 of 44
F-12
<PAGE>
XPLORER, S.A. (a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended December 31, 1996
Note 8 Atlantic-Pacific Trust, LLC (cont'd)
by the Company to pay Gerant creditors according to the Plan. At
December 31, 1996, the value of 275,334 shares (59% of 466,667) has
been eliminated upon consolidation.
The Plan provided that Compania Comercial Atlantis, S.A. would exchange
500,000 of it's LLC units for 1,250,000 preferred shares of the
Company. However, only 417,200 units were exchanged for 1,043,000
preferred shares under this Plan. In December 1996, this company did
exchange 189,960 units for an additional 237,550 shares of preferred
stock. The preferred stock is partially convertible to ten shares of
common stock at the end of six years and had a dividend of 1.00% per
month payable in common stock at time of conversion. In December 1996,
the preferred stockholder agreed to waive all present and future
preferred dividend rights for the future issuance of 1,000,000 common
shares of the Company.
The Plan also provided that 585,560 LLC units held by Atlantic
beneficiaries be exchanged for Debtor Notes and converted to 14,639,000
shares of common stock. In addition, the former Gerant shareholders had
a reverse split of 5 to 1 to 400,000 total shares which were to be
exchanged pursuant to the Plan for 400,000 common stock Units of the
Company. Each common stock Unit consisting of one common share and one
Warrant for one share of common at 70% of market asking price on August
5, 1997. (287,000 Units were issued as of 12/31/96)
Note 9 Accrued Legal Fees:
Per the Plan, Atlantic agreed to purchase an estimated $257,000 legal
fee administrative claim of the law firm, Robinson, Diamant, Brill &
Klausner (the" Firm"). Upon the purchase, Atlantic intends to exchange
the claim for 257,000 of its Xplorer, S.A. common stock special units.
During 1996, the Firm was paid $159,000 and a bonus of 100,000 shares
of Company common stock.
Note 10 Note Payable:
In September, 1996 the Company borrowed $450,000 from Gardner
Investments. The terms of the note are 10.00% per annum payable
monthly. The principal is due and payable on September 25, 1997 and is
secured by 500,000 Class C Units of United Realty Group, L.P. The note
is convertible, at the option of the holder, at any time for 150,000
shares of common stock of the Company.
Page 42 of 45
F-13
<PAGE>
XPLORER, S.A. (a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended December 31, 1996
Note 11 Investment Contracts Payable:
Atlantic has issued investment contracts under German securities laws.
Such contracts are four types:
a) Contract of $9,645 per kilo received in U.S. dollars for
purchase of undelivered kilos (32.15 troy ounces) of gold
bullion. All contracts have a one year maturity. As of December
31, 1996, the balance is $273,000. The Company has covered its
gold risk on outstanding contracts up to $369 per ounce.
b) Zero-coupon contract of $12,500 payable in U.S. dollars and
bearing interest at 9.00% per annum. Such contracts are
repayable with related interest in one to five years. As of
December 31, 1996 the balance is $337,500 and interest expense
of $28,100 has been accreted.
c) Zero-coupon contract payable in 5,000 German Deutsche Marks
("DM") units and bearing interest at 9.00% per annum. Such
contracts are repayable with related interest in DM in one to
five years. The balance as of December 31, 1996 is $1,129,500
and interest expense of $132,300 has been accreted.
d) Zero-coupon contract payable in DM or gold at the rate of 600 DM
principal per 1 troy ounce of gold did not result in funding to
the Company until January 1997. This is the only type of
contract that will be offered in the future.
All bonds are secured by the Company's interest in the Evening Star
mining claims per assignment to a bond trustee.
The Company paid commissions of approximately 33% and raised $1,375,000
in net funds during 1996.
Investment contracts are due as follows:
1997 $1,188,000
1998 267,000
1999 150,000
2000 45,000
2001 86,700
2002 4,000
----------
Total $1,740,700
==========
Page 43 of 44
F-14
<PAGE>
XPLORER, S.A. (a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended December 31, 1996
Note 12 Related Party Payable:
In 1995, Atlantic entered into agreements with Sequoia Trust, a related
party, to lease surface and mineral rights related to 57 acres of land
adjacent to Evening Star Mine and certain improved real property known
as the Weldon Research Center for total cost of $6000 per month. These
lease are renewable after a five year term and require a future minimum
annual payment of $72,000 to Sequoia Trust. Total charges capitalized
to development during 1996 were $104,000.
These properties provide the Company with the opportunity to develop
three patented mining claims with probable commercial grade ore (12%
royalty due to Sequoia Trust), construct a primary ore processing
refinery, and utilize 13,000 square feet at the Weldon Research Center
for its mineralization analysis and other testing procedures.
Atlantic also has a cancellable contract with EMTEC, Inc., a related
party, for development of the all eleven mining claims and the future
operation of the mine and refinery. The contract requires the Company
to pay EMTEC bi-monthly at invoiced cost plus 18% overhead. Total
charges capitalized to development during 1996 were $459,000.
As of December 31, 1996 the Company owes these entities $147,000 for
past services and such amount is accrued into development costs for
Evening Star Mine (See Note 6).
Note 13 New Accounting Pronouncements:
Statement of Financial Accounting Standards No 121, "Accounting for the
Impairment of Long-Lived Assets to be Disposed Of" (SFAS 121) requires
that long-lived assets be reviewed for impairment whenever changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The adoption of this statement as of December 31, 1996 had
no material effect on the consolidated financial statements.
Statement of Financial Accounting Standards Nos. 123, "Accounting for
Stock-Based Compensation" (SFAS 123) establishes financial accounting
and reporting standards for stock-based employee compensation plans as
well as transactions in which an entity issues its equity instruments
to acquire goods or services from non-employees. However, it also
allows an entity to continue to measure compensation cost based on APB
Opinion No. 125, "Accounting for Stock Issued to Employees". The
Company has determined that the fair value of stock transactions is
similar to the issue price at the time of granting and accordingly, has
elected to continue to apply the intrinsic value based method.
In June, 1996, Statement of Financial Accounting Standards No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" (SFAS No.
Page 44 of 45
F-15
<PAGE>
XPLORER, S.A. (a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended December 31, 1996
Note 13 New Accounting Pronouncements (cont'd)
125), which provides accounting and reporting standards for transfers
and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996 was issued. The adopting of SFAS No.
125 is not expected to have any impact on the financial statements of
the Company.
Page 45 of 45
F-16
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 166,000
<SECURITIES> 226,400
<RECEIVABLES> 16,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 618,400
<PP&E> 3,586,300
<DEPRECIATION> (181,900)
<TOTAL-ASSETS> 5,041,800
<CURRENT-LIABILITIES> 1,828,200
<BONDS> 0
0
1,300
<COMMON> 17,600
<OTHER-SE> 1,642,000
<TOTAL-LIABILITY-AND-EQUITY> 5,041,800
<SALES> 0
<TOTAL-REVENUES> 85,400
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,006,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 171,700
<INCOME-PRETAX> (1,092,300)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,092,600)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (752,000)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
