SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the fiscal year ended December 31, 1997.
[ ] 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
(State or other jurisdiction of incorporation or organization)
88-0199674
(I.R.S. Employer Identification No.)
2929 S. Maryland Parkway
Las Vegas, Nevada
(Address of principal executive offices)
89109
(Zip Code)
Issuer's telephone number, including area code: (702) 699-5400
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 ]
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, 1997 totaled $65,996. As of
December 31, 1997, 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 August 31, 1999, the registrant had outstanding 20,086,266 shares of
Common Stock.
Transitional Small Business Disclosure Format: [ X ] Yes [ ] No
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TABLE OF CONTENTS
Page
PART I
Item 1. Business ..............................................3
Item 2. Properties ............................................11
Item 3. Legal Proceedings .....................................12
Item 4. Submission of Matters to a Vote of Security Holders ...12
PART II
Item 5. Market for Company's Common Equity and Related
Stockholder Matters ..............................12
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations ..............14
Item 7. Financial Statements ..................................14
Item 8. Change in and Disagreements With Accountants ..........14
PART III
Item 9. Directors and Executive Officers ......................15
Item 10. Executive Compensation ................................16
Item 11. Security Ownership of Certain Beneficial Owners
and Management ...................................18
Item 12. Certain Relationships and Related Transactions ........19
PART IV
Item 13. Exhibits and Reports on Form 8-K ......................20
Index to Consolidated Financial Statements and
Schedules ........................................F-1
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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. Subsequently these Warrants
were extended until February 1998, at which time all Warrants were either
exercised or expired. 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. In September,1997, the
Company acquired an additional 20,000 UBI's of APT in exchange for 250,000
shares of its Common Stock. Currently, XPLORER owns 59.6% of APT.
The Company's principal executive offices are located at 2929 South Maryland
Parkway, Las Vegas, Nevada, 89109, and its telephone number is (702)699-5400.
CAUTIONARY "SAFE HARBOR" STATEMENT UNDER THE UNITED STATES PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995.
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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.
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.
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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
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 was to 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. For the year 1997, APT had paid Emtec $200,000 for its developmental work
in the Evening Star Mine.
In December, 1997, the Company and Emtec mutually agreed to cancel the
agreement.
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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.
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.
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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.
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 issued 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). At December 31, 1997, APT owed $192,231 on these bonds of which
$77,438 is due before December 31, 1998.
Between June 1, 1996 and January 15, 1997, APT issued 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. At December 31, 1997, APT owed $868,913 on these
bonds of which $567,669 is due before December 31, 1998.
Between September, 1995 and September, 1996, APT issued 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. At December 31,
1997, APT owed $118,636 on these bonds of which $118,636 is due before December
31, 1998.
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
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
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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. At December 31, 1997, APT owed
$576,041 on these bonds of which $352,104 is due before December 31, 1998. .
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.
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
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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
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
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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.
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.
Subsequent Event
In June, 1999, the Company entered into an advisory agreement with
NuVen Advisors, Inc. ("NuVen") whereby NuVen will assist the Company by
developing a restructuring plan and then assist the Company in implementing the
restructuring plan. Such restructuring includes a Plan of Reorganiztion with
Interactive Business Channel("IBC") and expansion into internet related
businesses. A change of corporate name to NetHoldings.com, Inc. was also
authorized.
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ITEM 2. DESCRIPTION OF PROPERTY
The Registrant's executive offices are located in a rented executive suite at
2929 S. Maryland, Las Vegas, Nevada 89109. The facility is provided free of
charge to the Company. The Registrant considers the facilities adequate for
current needs.
Evening Star Mine Group
Atlantic Pacific Trust, 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 August 31, 1999, 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,
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.
[XPLORER\10KSB:123197]-6
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ITEM 3. LEGAL PROCEEDINGS
None.
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, 1997.
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 December 31, 1997 $0.50 $1.75
(a) Holders:
The approximate number of holders of record of Common Shares, as of
August 31, 1999, was 343.
(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 emerged 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.
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II. Plan of Operation
The Registrant has been 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 capital, construction of the
Pilot Plant will be commenced. The Pilot Plant is expected to
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 $2.1 million
negative working capital.
At the present time, management is uncertain when the Pilot Plant will
be completed and operations commenced. 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.
Results of Operations
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
There were no revenue generating operations during 1997 and 1996 and,
consequently, no operating revenues or cost of revenues were recorded.
General and administrative expenses were $765,169 in 1997 compared to $449,100
in 1996 as a result of costs associated with the Gerant merger and their
evolving from Chapter 11, as well as costs associated with the mutual
termination of the Operating agreement with Emtec,LLC, and the leases with
Sequoia Trust. As a result of these termination agreements the Company has
temporarily suspended preparations for the construction of a Pilot Plant.
Total expenses were $5,119,690 in 1997 compared to $1,177,700 in 1996 due to
impairment losses recognized by the Company based on new information regarding
its mining properties and certain investments of $3,303,500 and $500,000,
respectively.
Liquidity and Capital Resources
As of December 31, 1997 the Registrant had a working capital deficiency of $2.1
million, an increase of $900,000 from 1996. The increase was attributable to the
continued preparations for construction of the Pilot Plant. A significant
portion of these expenses was satisfied during 1997 by the issuance of common
shares on the Company in settlement of amounts due. Registrant had $71,124 in
cash at December 31, 1997 a decrease of $94,876 from 1996. The decrease was due
to continued development operations.
[XPLORER\10KSB:123197]-6
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The Registrant's plan is to keep searching for additional sources of capital and
new operating opportunities. In the interim, the Registrant's existence is
dependent on continuing financial support from investors, which with the scaled
operations is estimated to be approximately $150,000 for the next fiscal year
based upon current operations. Furthermore, the Registrant may have to utilize
its common stock for future financial support to finance its needs. Such
conditions raise substantial doubt about the Registrant's ability to continue as
a going concern. As such, the Registrant's independent accountants have included
an explanatory paragraph with respect to the uncertainty.
The Registrant has no commitments for capital expenditures or additional equity
or debt financing and no assurances can be made that its working capital needs
can be met.
Additionally, as of December 31, 1997, the Registrant had three employees
including officers and directors.
ITEM 7. FINANCIAL STATEMENTS
The following financial statements are included as a separate section following
the signature page to this Form 10-KSB and are incorporated herein by reference:
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Auditor ...............................F-1, F-2
Consolidated Balance Sheet...................................F-3
Consolidated Statement of Operations for the year ended
December 31, 1997 ..........................................F-4
Consolidated Statement of Shareholders' Equity for the year
ended December 31, 1997 ....................................F-5
Consolidated Statement of Cash Flows for the year ended
December 31, 1997 ..........................................F-7
Notes to Financial Statements................................F-8-18
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
As previously reported, on January 15, 1998, Jay J. Shapiro, C.P.A. was replaced
as the Registrant's independent accountant. Jay J. Shapiro, C.P.A. previously
issued an unqualified report dated December 30, 1997, assuming the Company will
continue as going concern, which did not contain any adverse opinion or
disclaimer of opinion, or any qualification as to uncertainty, audit scope of
accounting principles. Such report has not been modified. There were no
disagreements with Jay J. Shapiro, C.P.A. on any matter of accounting principles
or practices, financial statement disclosure or auditing scope or procedure
during the two year period prior covered by their report and subsequently
through January 22, 1998.
On January 22, 1998, the auditing practice of Brown, Armstrong, Randall & Reyes
was engaged to perform the audit of the Company for the year ended December 31,
1997.
The decision to replace Jay J. Shapiro, C.P.A. with the auditing practice of
Brown, Armstrong, Randall & Reyes was made by the Board of Directors. At the
present time the Board of Directors does not have an audit committee.
[XPLORER\10KSB:123197]-6
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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 37 Chairman of the Board and Secretary
Thomas C. Roddy, PE.(1) 45 Director, President and Chief Executive Officer
Jon W. Bice(1) 53 Director, Treasurer and Chief Financial Officer
Joyce J. Pellet (1) 61 Director
Benjamin C. Rice(1) 59 Director
(1) As part of a restructuring of Registrant in June 1999, Mr. Roddy,
Mr. Bice, Ms. Pellet and Mr. Rice resigned their positions as Officers and
Directors of Xplorer, S.A.
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
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.
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 small, 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.
[XPLORER\10KSB:123197]-6
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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 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, 1997, 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 $60,000 during the
fiscal year ended December 31, 1997, less any stock incentives issued. All
executive officers as a group (three persons) received cash compensation of
approximately $180,000 during the fiscal year ended December 31, 1997. Beginning
January 1, 1997, the Company has agreed to pay to Messrs. Mortensen, Roddy, 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.
[XPLORER\10KSB:123197]-6
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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,
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 ten 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, 680,000 were
granted in January 1997 to officers, directors, consultants, and employees.
The following table sets forth certain information with respect to all qualified
stock options held as of March 31, 1998 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 *
Thomas C. Roddy 75,000 .50 *
Jon W. Bice 75,000 .50 *
All executive officers as a group 300,000 .50 *
(3 persons)
* 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.
[XPLORER\10KSB:123197]-6
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ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information, as of March 31, 1998, 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 of Number of Shares Percent
Beneficial Owner Beneficially Owned(1)(9) of Class(2)
- ---------------------------------- ------------------------ -----------
Steven B. Mortensen 615,000(3) 2.4
Thomas C. Roddy 100,000(4) *
Jon W. Bice 120,000(5) *
Joyce J. Pellet 55,000(6) *
Benjamin C. Rice -0-(7) *
Compania Comercial Atlantis, S.A. 1,000,000(8) 5.1
* 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 19,779,705 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 options to purchase 75,000 shares of the Company's
common stock.
(6) Does not include 750,000 shares held by the Sequoia Irrevocable Trust
of which Mrs. Pellet's adult children are the beneficiaries. Mrs.
Pellet is a trustee of the trust and disclaims 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.
(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. Does not include 12,805,500 shares of common stock to
be issued in charge for 1,280,550 shares of Preferred Stock pursuant to
a formal request from Compania Comercial Atlants S.A. to convert the
Preferred Stock dated July 28, 1999.
[XPLORER\10KSB:123197]-6
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(9) Does not include 1,500,000 shares issued to NuVen Advisors, Inc. in
June 1999, in connection with the execution of an advisory agreement
and the restructuring of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
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 intended 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. This lease was canceled by mutual
agreement in December, 1997.
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.
This lease was canceled by mutual agreement in December, 1997.
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 had paid Emtec $462,143.
For the year 1997 the company paid EMTEC $200,000.This Operating
Agreement was canceled by mutual agreement in December, 1997.
Mr. Moreland, a former officer and director of the Company, and Mrs. Pellet, a
director of the Company, were 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
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
[XPLORER\10KSB:123197]-6
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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.
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.
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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.
(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
1) On February 4, 1998, the Registrant filed a Form 8-K reporting
a change in independent accountant from Jay J. Shapiro to
Brown, Armstrong, Randall & Reyes. See Part II, Item 8.
2) On May 13, 1998, the registrant filed a Form 8-K reporting: a)
change in corporate domicile to Nevada, b) a change of address
for the corporation and c) engagement of new Chief Ecexutive
officer and member of board of directors.
3) On June 24, 1998, the Registrant filed a Form 8-K reporting a
change in members of management and the board of directors.
[XPLORER\10KSB:123197]-6
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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: August 22, 1999 By: /s/ Steven B. Mortensen
-----------------------------------
Steven B. Mortensen, 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 President and
- ------------------------ Chairman of the Board September 22, 1999
Steven B. Mortensen
/s/ Jon L. Lawver Secretary and Director September 22, 1999
- ------------------------
Jon L. Lawver
/s/ Leonard J. Roman Treasurer/Financial September 22, 1999
- ------------------------ Officer and Director
Leonard J. Roman
[XPLORER\10KSB:123197]-6
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XPLORER, S.A.
DECEMBER 31, 1997
TABLE OF CONTENTS
Page
Independent Auditors' Reports ...............................F-1, F-2
Consolidated Balance Sheet...................................F-3
Consolidated Statement of Operations.........................F-4
Consolidated Statement of Stockholder's Equity (Deficit).....F-5
Consolidated Statement of Cash Flows.........................F-7
Notes to Consolidated Financial Statements...................F-8-18
[XPLORER\10KSB:123197]-6
F-i
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors of
Xplorer, S.A.
Weldon, California
We have audited the accompanying consolidated balance sheet of Xplorer, S.A.
(the Company), a development stage enterprise, as of December 31, 1997, and the
related consolidated statement of operations, shareholders' equity (deficit) and
cash flows for the year ended December 31, 1997. 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, 1997, and the results of its operations and its cash flows for the
year ended December 31, 1997, in conformity with generally accepted accounting
principles.
As of December 31, 1997, the Company has significant negative working capital
and exposure to financial uncertainties (see Notes 1 and 2).
As discussed in Note 10 to the financial statements, the Company has been unable
to repay $929,522 in debt obligations which matured subsequent to December 31,
1997.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1, there
are conditions which raise substantial doubt about the Company's ability to
continue as a going concern, including the Company's ability to raise additional
capital to fund its operations and development programs and to establish ore
reserves. Management's plans in regard to these matters are described in Note 1.
The consolidated financial statements do not include any adjustments relating to
the recoverability and classification of reported asset amounts and
classification of liabilities that might result from the outcome of these
uncertainties.
BROWN ARMSTRONG RANDALL
REYES PAULDEN & McCOWN
ACCOUNTANCY CORPORATION
Bakersfield, California
August 5, 1999
[XPLORER\10KSB:123197]-6
F-1
<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
[XPLORER\10KSB:123197]-6
F-2
<PAGE>
<TABLE>
<CAPTION>
XPLORER, S.A.
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997
ASSETS
<S> <C>
Current Assets
Cash and cash equivalents $ 71,124
Receivables 39,166
-------------------
Total Current Assets 110,290
Property and equipment 98,720
Other investments 156,683
-------------------
TOTAL ASSETS $ 365,693
===================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accrued expensed $ 333,867
Related party payable 364,675
Note payable 450,000
Current portion of long-term debt 1,065,847
-------------------
Total Current Liabilities 2,214,389
Long-term debt 689,974
Total Liabilities 2,904,363
Minority Interest -
Shareholders' Equity (Deficit)
Preferred stock, par value $.001; authorized 15,000,000 shares; convertible
beginning in 2001; 1,280,550 shares
issued and outstanding 1,281
Common stock, par value $.001; authorized 60,000,000
shares; 19,779,705 issued and outstanding 19,780
Additional paid in capital 2,545,964
Accumulated deficit during development stage (5,105,695)
Total Shareholders' Equity (Deficit) (2,538,670)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 365,693
(DEFICIT) ===================
</TABLE>
The accompanying notes are an integral part of these financial statements.
[XPLORER\10-KSB:123197FIN-CLN]
F-3
<PAGE>
<TABLE>
<CAPTION>
XPLORER, S.A.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
AND THE PERIOD FROM AUGUST 15, 1996 (Inception of
Development Stage Enterprise Activities) THROUGH
DECEMBER 31, 1997
For the
Period from
August 15,
1996
For the For the (Inception)
Year Ended Year Ended Through
December 31, December 31, December 31,
1997 1996 1997
--------------------- ------------------- -------------------
<S> <C> <C> <C>
Revenues
Other income $ 25,976 $ 37,000 $ 62,976
Interest income 40,020 48,400 88,420
--------------------- ------------------- -------------------
Total revenues 65,996 85,400 151,396
--------------------- -------------------- -------------------
Expenses
Commission expense 292,185 450,900 743,085
General and administrative 765,804 449,100 1,214,904
Loss on impairment of mining assets 3,303,500 - 3,303,500
Loss on impairment of other assets 500,000 - 500,000
Net loss on investments and settlement
of gold contracts 122,317 106,000 228,317
Interest expense 135,884 171,700 307,584
--------------------- ------------------- -------------------
Total expenses 5,119,690 1,177,700 6,297,390
--------------------- ------------------- ------------------
Net loss before minority interest (5,053,694) (1,092,300) (6,145,994)
Minority interest 1,817,000 340,300 2,157,300
--------------------- ------------------- ------------------
Net loss $ (3,236,694) $ (752,000) $ (3,988,694)
=================== ================== =================
Net loss per common share $ .18) $ (.12)
==================== ==================
Weighted average common shares
outstanding 19,028,346 6,113,040
==================== ==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
[XPLORER\10-KSB:123197FIN-CLN]
F-4
<PAGE>
<TABLE>
<CAPTION>
XPLORER, S.A.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY(DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
Common Stock Preferred Stock Accumulated
($.001 par) ($.001 par) Deficit
------------------- --------------------- Additional During
Paid-in Development
Shares Amount Shares Amount Capital Stage Total
---------- ------- --------- ------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 336,218 $ 336 - $ - $1,793,800 $(104,001) $1,690,135
August 15, 1996 merger
with Gerant pursuant to the
Plan (August 1996) 14,639,000 14,639 1,043,000 1,043 252,764 52,000 320,446
Stock issued to special
creditors pursuant to the
Plan (September 1996) 1,002,229 1,002 - - 98,600 - 99,602
Preferred stock issuance
to Atlantic beneficiary for
189,960 LLC's (December
1996) - - 237,550 238 207,300 - 207,538
Dividend waiver on
preferred stock (December
1996) 1,000,000 1,000 - - 99,000 (100,000) -
Stock issued to employees
and consultants for
professional services
(December 1996) 1,805,000 1,805 - - 94,500 - 96,305
Net loss for period - - - - - (752,000) (752,000)
---------- ------- --------- ------ ---------- ---------- ----------
</TABLE>
(Continued)
The accompanying notes are an integral part of these financial statements.
[XPLORER\10-KSB:123197FIN-CLN]
F-5
<PAGE>
<TABLE>
<CAPTION>
XPLORER, S.A.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
Common Stock Preferred Stock Accumulated
($.001 par) ($.001 par) Deficit
------------------- --------------------- Additional During
Paid-in Development
Shares Amount Shares Amount Capital Stage Total
---------- ------- --------- ------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 18,782,447 18,782 1,280,550 1,281 2,545,964 (904,001) 1,662,026
Shares issued for purchase
of 20,000 units in Atlantic
Pacific Trust (September
1997) 250,000 250 - - - - 250
Stock issued to employees
and consultants for
professional services
(September 1997) 830,000 830 - - - - 830
Shares retired
(September 1997) (82,742) (82) - - - - (82)
Net loss for period - - - - - (3,236,694) (3,236,694)
Minority interest losses in
excess of minority interest
equity - - - - - (965,000) (965,000)
---------- ------- --------- ------ ---------- ---------- ----------
Balance, December 31, 1997 19,779,705 $19,780 1,280,550 $1,281 $2,545,964 $(5,105,695) $(2,538,670)
========== ======= ========= ====== ========== ============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
[XPLORER\10-KSB:123197FIN-CLN]
F-6
<PAGE>
<TABLE>
<CAPTION>
XPLORER, S.A. AND SUBSIDIARY
(A Development Stage Enterprise)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
AND THE PERIOD FROM AUGUST 15, 1996 (Inception of
Development Stage Enterprise Activities) THROUGH
DECEMBER 31, 1997
For the
Period from
August 15,
1996
For the For the (Inception)
Year Ended Year Ended Through
December 31, December 31, December 31,
1997 1996 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net loss $ (3,236,694) $ (752,000) $ (3,988,694)
Adjustments to reconcile net loss to net cash
used by operating activities:
Minority interest in net loss of company (1,817,000) (340,300) (2,157,300)
Loss due to impairment of mining assets 3,303,500 - 3,303,500
Loss due to impairment of other assets 500,000 - 500,000
Loss on settlement of note receivable 256,487 - 256,487
Depreciation and amortization - 181,900 181,900
Accretion of interest - 160,400 160,400
(Gain) loss on marketable securities 226,400 (37,000) 189,400
Accrued expenses and other liabilities 145,667 40,200 185,867
Related party payables 215,675 149,000 364,675
Accrued Gerant obligations - (140,000) (140,000)
Prepaid commissions 210,000 (210,000) -
Accounts receivable (22,042) (71,500) (93,542)
----------------- ----------------- -----------------
Net Cash Used by Operating Activities (218,007) (1,019,300) (1,237,307)
----------------- ----------------- -----------------
Cash Flows from Financing Activities
Sale of Atlantic units for cash - 458,300 458,300
Proceeds from sale of investment contracts 695,288 1,375,000 2,070,288
Payments on investment contracts (380,534) - (380,534)
Repayment of gold contracts (154,364) (325,000) (479,364)
Repayment of U.S. Bonds (145,269) - (145,269)
Proceeds from notes payable - 450,000 450,000
------------------ ----------------- ------------------
Net Cash Provided by Financing Activities 15,121 1,958,300 1,973,421
------------------ ----------------- ------------------
(Continued)
</TABLE>
The accompanying notes are an integral part of these financial statements.
[XPLORER\10-KSB:123197FIN-CLN]
F-7
<PAGE>
<TABLE>
<CAPTION>
XPLORER, S.A. AND SUBSIDIARY
(A Development Stage Enterprise)
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
AND THE PERIOD FROM AUGUST 15, 1996 (Inception of
Development Stage Enterprise Activities) THROUGH
DECEMBER 31, 1997
For the
Period from
August 15,
1996
For the For the (Inception)
Year Ended Year Ended Through
December 31, December 31, December 31,
1997 1996 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
Cash Flows from Investing Activities
Computer equipment purchases - (8,000) (8,000)
Mining property expenditures - (527,000) (527,000)
Sale of property and equipment 2,180 - 2,180
Acquisition of marketable securities (143,513) (1,130,000) (1,273,513)
Proceeds from marketable securities - 911,000 911,000
Gerant creditor expenditures - (355,000) (355,000)
Proceeds of other investments 249,343 - 249,343
------------------ ----------------- ----------------
Net Cash Provided (Used) by Investing Activities 108,010 (1,109,000) (1,000,990)
------------------ ---------------- ----------------
Net Increase (Decrease) in Cash (94,876) (170,000) (264,876)
Cash Balance, Beginning of Year 166,000 336,000 336,000
----------------- ---------------- ----------------
Cash Balance, End of Year $ 71,124 $ 166,000 $ 71,124
================= ================ ================
Interest Paid $ 100,000 $ 11,300 $ 111,300
================= ================ ================
Income Taxes Paid $ 800 $ 800 $ 1,600
================= ================ ================
Non-Cash:
Minority losses in excess of minority equity $ 965,000 $ - $ 965,000
================= ================ ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
[XPLORER\10-KSB:123197FIN-CLN]
F-8
<PAGE>
XPLORER, S.A. AND SUBSIDIARY
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND PRESENTATION
Organization
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 is a development stage enterprise and has not achieved its intended
operations or related revenue as of August 5, 1999.
The Company owns 59% of Atlanta Pacific Trust, LLC (APT) and its wholly-owned
subsidiary Atlantic-Pacific Finanzprodukte, GmbH (APT Germany). APT is the owner
of the Evening Star Mine and through its subsidiary APT Germany secures
financing for its exploration and development activities.
The Company's consolidated financial statements have been presented on the basis
that it is a going concern, which contemplates the realization of the mineral
properties and other assets and the satisfaction of liabilities in the normal
course of business. The Company has incurred losses of $6,145,994 before
minority interest, from inception to December 31, 1997. The Company has not
realized economic production from its mineral properties as of August 5, 1999.
These factors raise substantial doubt about the Company's ability to continue as
a going concern. Management continues to actively seek additional sources of
capital to fund current and future operations. There is no assurance that the
Company will be successful in continuing to raise additional capital,
establishing probable or proven ore reserves, or determining if the mineral
properties can be mined economically. These consolidated financial statements do
not include any adjustments that might result from the outcome of these
uncertainties.
F-9
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its 59% owned subsidiary, Atlantic Pacific Trust, LLC (APT), and APT's wholly
owned subsidiary, Atlantic-Pacific Finanzprodukte, GmbH. In consolidations, all
significant intercompany balances and transactions are eliminated.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities, and
disclosure of contingent liabilities at the date of the financial statements,
and the reported amount of revenues and expenses during the reporting period.
Actual results could differ from those results.
Mineral Properties and Mining Equipment
Mineral properties and mining equipment are carried at cost. Depreciation on
equipment is provided on a straight-line basis over its estimated useful lives
ranging from three years to five years. Mining equipment not in service is not
depreciated.
In the past, the Company deferred direct costs related to the acquisition,
exploration and development of mineral properties pending determination of their
economic viability which normally entails performing an in-depth geological and
geophysical study. If no minable ore body was discovered, previously capitalized
costs were expensed in the period the property was abandoned.
Although the Company has performed drilling samples, and an independent engineer
has deemed the gold properties contain profitable reserves in excess of property
and equipment costs incurred through December 31, 1997, management has chosen to
follow the more conservative method of accounting by expending the previously
capitalized gold mineral costs of $2,665,500 as of December 31, 1996, and
expensing any development costs incurred in 1997.
Office Furniture and Equipment
Office furniture and equipment are recorded at cost. Depreciation is computed by
the straight-line method based upon the estimated useful lives of the respective
assets, generally three to five years.
Income (Loss) per Common Stock
Income (loss) per share of common stock is computed based on the weighted
average number of shares outstanding. Warrants, options and convertible
debentures have not been included in the calculation as their effect would be
anti-dilutive.
F-10
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
The Company accounts for income taxes using the liability method which requires
recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Deferred tax assets and liabilities are determined based on the
difference between the financial statements and tax basis of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
Stock Based Compensation
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," (SFAS 123), which is effective for periods beginning after
December 15, 1995. SFAS 123 requires that companies either recognize
compensation expense for grants of stock, stock options, and other equity
instruments based on fair value or provide proforma disclosure of the effect on
net income and earnings per share in the Notes to the Financial Statements. The
Company intends to continue to account for its stock- based compensation under
Accounting Principles Board No. 25; however, the Company has adopted the
disclosure provisions of SFAS 123 for the fiscal year ended December 31, 1997.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include highly
liquid debt instruments purchased with a maturity of three months or less.
Asset Impairment
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," (SFAS 121), management of the Company reviews the net carrying
value of the Evening Star mine and development property on a regular quarterly
basis. Estimated future net cash flows from each mine are calculated using
estimated future prices, operating capital, and reclamation costs on an
undescended basis. Reductions in the carrying value of each mine are recorded to
the extent the net book value of the investment exceeds the estimate of future
discounted net cash flows.
The recoverability of the carrying value of development projects is evaluated
based upon persuasive engineering evidence of estimated future net cash flows
from each property, determined as described above, using estimates of contained
mineralization expected to be classified as proven and/or probable reserves upon
completion of a feasibility study. Reductions in the carrying value of each
property are recorded to the extent that the Company's carrying value in each
property exceeds management's estimate of future discounted net cash flows. When
mining equipment is idle, management decides if it will be used productively in
the future. For idle equipment that is unique to an abandoned or impaired
property, the Company reduces its carrying value following the impairment
accounting principle.
F-11
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Management's estimates of gold prices, recoverable proven and probable reserves,
operating capital, and reclamation costs are subject to certain risks and
uncertainties which may affect the recoverability of the Company's investment in
property, plant, and equipment. Although management has made its best estimate
of these factors based on current conditions, it is reasonably possible that
changes could occur in the near term which could adversely affect management's
estimate of the net cash flow expected to be generated from its operations.
Earnings Per Share
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per
Share", which was adopted by the Company for the year ended December 31, 1997.
SFAS 128 replaces the presentation of primary earnings per share with a
presentation of basic earnings per share based upon the weighted average number
of common shares for the period.
New Accounting Pronouncements
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130 (SFAS 130), Reporting Comprehensive Income. This statement requires that all
items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. SFAS 130 will
be adopted by the Company for the year ended December 31, 1998. Prior period
financial statements provided for comparative purposes will be reclassified, as
required. Upon adoption, the Company does not expect SFAS 130 to have a material
effect upon the Company's financial condition or results of operations.
In June 1997, the FASB issued Statements of Financial Accounting Standards No.
131 (SFAS 131), Disclosures about Segments of an Enterprise and Related
Information. The statement requires the Company to report income/loss, revenue,
expense and assets by business segment including information regarding the
revenues derived from specific products and services and about the countries in
which the Company is operating. The Statement also requires that the Company
report descriptive information about the way that operating segments were
determined, the products and services provided by the operating segments,
differences between the measurements used in reporting segment information and
those used in the Company's general-purpose financial statements, and changes in
the measurement of segment amounts from period to period. SFAS 131 has been
adopted by the Company for the year ended December 31, 1998. This statement has
no effect on financial statements traditionally presented by the Company, but
increases required disclosures.
F-12
<PAGE>
NOTE 3 - AFFILIATES AND RELATED PARTIES
Significant relationships with (1) companies affiliated through common ownership
and/or management, and (2) other related parties are as follows:
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 $6,000 per month. This lease
was canceled by mutual agreement in December 1997.
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 cancelable contract with EMTEC, Inc., a related party,
for development of 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. This lease was canceled by mutual
agreement in December 1997.
At December 31, 1997, APT owed the above related entities
development costs and accrued interest in the amount of $364,675.
In the ordinary course of business, the Company had advanced and received
advances from APT. Such advances to the Company amounted to $197,000. This
amount was subsequently forgiven by APT at December 31, 1997.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1997:
Computer equipment $ 8,705
Mining equipment 909,415
--------
Less accumulated depreciation and allowance 918,120
819,400
--------
$ 98,720
During the year ended December 31, 1997, the Company expensed previously
capitalized development costs of its Evening Star mine in the amount of
$2,665,500.
During the year ended December 31, 1997, the Company considered its mining
equipment to be impaired and has provided an allowance for 90% of its original
cost. Impairment on the mining equipment recognized during the year ended
December 31, 1997 amounted to $638,000.
F-13
<PAGE>
NOTE 5 - NOTE PAYABLE
Note payable in the amount of $450,000, with interest at 10% per annum payable
monthly, with all outstanding principal and interest due on demand. The note is
convertible at any time for 150,000 shares of the common stock of the Company at
the option of the holder.
NOTE 6 - INVESTMENT CONTRACTS PAYABLE
Atlantic has issued investment contracts under German securities laws.
Investment contracts payable consist of the following at December 31, 1997:
<TABLE>
<CAPTION>
<S> <C>
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. $ 118,636
Zero-coupon contract of $12,500 payable
in U.S. dollars and bearing interest at
9.00% per annum. Such contracts are
payable with related interest in one to five years. 192,231
Zero-coupon contract payable in 5,000 German
Deutsche Marks (DM) units and bearing
interest at 9.00% per annum. Such contracts
are payable with related interest in DM in
one to five years. 868,913
Zero-coupon contract payable in DM or
gold at the rate of 600 DM principal per unit
and bearing interest at 9.00% per annum.
Contracts are payable with related
interest in DM in one to five years. 576,041
---------------
1,755,821
Less current portion of long-term debt 1,065,847
----------------
$ 689,974
</TABLE>
As of August 5, 1999, the Company was unable to repay $929,522 in contracts that
matured subsequent to December 31, 1997. In connection with the sale by APT of
Bonds, Certificates, Contracts and 9% Bonds ("Contracts") 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 Contracts are fully satisfied. The
Trustee will allow APT to remove and process gold ore from the Evening Star Mine
for delivery and payment of Contracts 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 Contracts have been fully repaid. 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 contracts.
F-14
<PAGE>
NOTE 6 - INVESTMENT CONTRACTS PAYABLE (Continued)
Accrued interest on the above contracts amounted to $218,705 at December 31,
1997.
Investment contracts are due as follows:
<TABLE>
<CAPTION>
For Years Ended Amount
December 31,
--------------- -------------
<S> <C> <C>
1998 $ 1,065,847
1999 282,674
2000 134,462
2001 208,454
2002 64,384
-------------
$ 1,755,821
</TABLE>
The amount due for 1998 included $453,281 of 1997 maturities.
NOTE 7 - INVESTMENT (GAINS) LOSSES
During the year ended December 31, 1997, the Company and its subsidiary incurred
the following losses on investments and other assets:
<TABLE>
<CAPTION>
<S> <C> <C>
Net loss on investments:
Loss on settlement of notes receivable $ 256,487
Gain on sale of Xplorer shares owned by APT (134,170)
--------------------
$ 122,317
===================
Impairment losses on investments:
Impairment of value of commercial
property owned by APT $ 500,000
===================
Impairment losses on mining assets:
Mining equipment $ 638,000
Development costs 2,665,500
-------------------
$ 3,303,500
</TABLE>
F-15
<PAGE>
NOTE 8 - SHAREHOLDERS' EQUITY
During fiscal 1997, the following major equity transactions occurred:
o The Company issued 830,000 shares of Common Stock with a value of $830 in
exchange for certain legal, engineering and employment services.
o The Company issued 250,000 shares of Common Stock with a value of
$250 in connection with its acquisition of 20,000 units in Atlantic
Pacific Trust.
During fiscal 1996, the following major equity transactions occurred:
o Pursuant to the Plan of Reorganization, 336,218 shares of Common Stock
were issued.
o Pursuant to the Plan of Reorganization, 14,639,000 shares of Common Stock
and 1,043,000 shares of Preferred Stock were issued.
o Pursuant to the Plan of Reorganization, the Company issued 1,002,229
shares of Common Stock to special creditors.
o The Company issued 237,550 shares of Preferred Stock to Atlantic Pacific
Trust beneficiary.
o The Company issued 1,805,000 shares of Common Stock in exchange for
certain legal and employment services rendered to the Company totaling
$96,305.
o The Company declared a dividend waiver on Preferred Stock and issued
1,000,000 shares of the Company's Common Stock.
NOTE 9 - STOCK OPTIONS
The Company has an incentive stock option plan under which ten-year options may
be granted to key employees to purchase shares of the Company's common stock at
$.50 per share on the date of grant. At December 31, 1997, options to purchase a
total of 680,000 shares at $.50 were outstanding and exercisable. A total of
680,000 shares of the Company's unissued common stock has been reserved for this
plan.
The Company applies APB Opinion 25 and related interpretations in accounting for
its stock option plan. The Company also applies principles from the consensus
reached in EITF 87-33 on stock option re-pricing transactions. Accordingly,
compensation cost has been recognized for the difference between the market
value of the stock at the date of issuance and the exercise price of the new
stock options granted. Had compensation cost for the Company's stock-based
compensation plan been determined based on the fair value at the grant dates for
awards under the plan consistent with the provision of SFAS 123, the Company's
net income and earnings per share would not have been materially reduced as the
theoretical value of the options were $.001.
F-16
<PAGE>
NOTE 10 - SUBSEQUENT EVENT
The Company issued an additional $98,162 zero coupon contracts payable in 5,000
German Deutsche Marks (DM) units, bearing interest at 9% per annum during the
year ended December 31, 1998.
The Company has been unable to repay $929,522 in debt obligations, which matured
subsequent to December 31, 1997, as of August 5, 1999.
The Company, in a meeting of the Board of Directors on July 30, 1999, entered
into the following agreement:
o Advisory agreement with a third party to assist the Company in
restructuring the Company and/or obtain financing for its operations;
o Authorized the issuance of 150,000 shares of Xplorer, S.A. common stock
to Gardner Investment, Inc. to convert the note payable of $450,000 to
common stock.
o Approved the conversion of 1,280,550 Xplorer, S.A. preferred shares owned
by a single shareholder to 12,805,050 Xplorer, S.A. common stock;
o Issuance of 1,500,000 common stock with options for additional common
stock to third party advisors in return for past and future consulting
services; and
o Xplorer, S.A. to enter into a stock purchase plan and plans of
reorganization whereby Xplorer, S.A. will exchange shares of its common
stock for no less than 50% of the outstanding common stock of an
unrelated corporation.
NOTE 11 - INCOME TAXES
At December 31, 1997, the Company and its subsidiary had available net operating
loss carryforwards for financial statement and federal income tax purposes of
approximately $4,000,000. These loss carryforwards expire between 2016 and 2017.
The Company has reported income tax losses in prior years. In general, income
tax losses are carried forward to future years to reduce future income taxes.
A valuation allowance of approximately $1,300,000 has been provided to offset
the benefit of approximately $1,300,000 from the remaining $4,000,000 loss
carryforwards. This valuation allowance is necessary because at December 31,
1997, the available benefits are more likely than not to expire before they can
be used.
F-17
<PAGE>
NOTE 12 - MINORITY INTEREST LOSSES IN EXCESS OF MINORITY INTEREST
EQUITY
During the year ended December 31, 1997, the majority interest absorbed minority
interest losses in excess of minority equity in the amount of $965,000. This
excess loss was charged directly to the majority interest accumulated deficit in
1997. Subsequently, when the loss reverses, the majority interest will be
credited with the amount of minority interest losses previously absorbed before
credit is made to the minority interest.
F-18
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 71,124
<SECURITIES> 0
<RECEIVABLES> 39,166
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 110,290
<PP&E> 918,120
<DEPRECIATION> (819,400)
<TOTAL-ASSETS> 365,693
<CURRENT-LIABILITIES> 2,214,389
<BONDS> 0
0
0
<COMMON> 1,281
<OTHER-SE> (1,574,951)
<TOTAL-LIABILITY-AND-EQUITY> 365,693
<SALES> 0
<TOTAL-REVENUES> 65,996
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,228,556
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 135,884
<INCOME-PRETAX> (3,481,444)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,481,444)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,481,444)
<EPS-BASIC> (0.18)
<EPS-DILUTED> (0.18)
</TABLE>
