<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) MARCH 6, 1996
--------------------
HERITAGE MINES, LTD.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Colorado 0-25798 84-1293168
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(State or other (Commission (I.R.S. Employer
jurisdiction File Number) Identification No.)
of incorporation
660 Newport Center Drive, Suite 660, Newport Beach, CA 92660
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (714) 760-8001
---------------------
- -------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
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- -------------------------------------------------------------------------------
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
The following Financial Statements and Exhibits are filed as part of
this report:
(a) Combined financial statements for GWZ Management Company, Inc.,
WAZCO Inc., and Heritage Gold Mines, Inc., for the years ended
January 31, 1996, 1995 and for the Period from Inception (May 14, 1992)
through January 31, 1996. On March 6, 1996, the registrant acquired all
of the issued and outstanding capital stock of Heritage Gold Mines,
Inc., a Nevada corporation. Heritage Gold Mines, Inc., in turn, is the
record and beneficial owner of all of the issued and outstanding capital
stock of WAZCO, Inc., a Nevada corporation, and GWZ Management Company,
Inc., a Nevada corporation.
(b) Pro Forma Condensed Consolidated Financial Statements of Heritage
Mines, Ltd (the Registrant) as of and for the year ended January 31,
1996.
(c) Exhibit 27 - Financial Data Schedule
1
<PAGE>
SIGNATURES
- -------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HERITAGE MINES, LTD.
------------------------------
(Registrant)
/s/ James D. Stout
------------------------------ ------------------------------
(Date) (Signature)*
James D. Stout, President
- -------------------------------------------------------------------------------
*Print name and title of signing officer under his signature.
2
<PAGE>
GWZ, WAZCO AND HERITAGE GOLD MINES
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT F-1
Combined Balance Sheet F-2 to F-3
Combined Statements of Operations F-4
Combined Statements of Stockholders' Equity (Deficit) F-5
Combined Statements of Cash Flows F-6 to F-7
Notes to Combined Financial Statements F-8 to F-15
<PAGE>
RAIMONDO, PETTIT & GLASSMAN
CERTIFIED PUBLIC ACCOUNTANTS
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
GWZ, WAZCO and Heritage Gold Mines
(A Development Stage Company)
Newport Beach, California
We have audited the accompanying combined balance sheets of GWZ Management
Company, Inc. (GWZ), WAZCO, Inc. (WAZCO) and Heritage Gold Mines, Inc. (Heritage
Gold Mines) (A Development Stage Company) (all entities collectively the
"Company") as of January 31, 1996, and the related combined statements of
operations, cash flows, and stockholders' equity (deficit) for the years ended
January 31, 1996, 1995 and for the period from inception (May 14, 1992) through
January 31, 1996. These combined financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the combined financial statements are
free of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the combined 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 audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of GWZ, Wazco and
Heritage Gold Mines (A Development Stage Company) as of January 31, 1996 and the
results of their operations and their cash flows for the years ended January 31,
1996, 1995 and for the period from inception (May 14, 1992) through January 31,
1996, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 1, the Company has no
revenue and may need additional funds to carry out its plan of operations. The
Company's continued existence depends upon its ability to obtain additional
equity or debt financing. These factors raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans with
respect to these matters are described in Note 1. No adjustments have been made
to the financial statements to provide for this uncertainty.
RAIMONDO, PETTIT & GLASSMAN
Torrance, California
June 28, 1996
F-1
<PAGE>
GWZ, WAZCO AND HERITAGE GOLD MINES
(A DEVELOPMENT STAGE COMPANY)
COMBINED BALANCE SHEET
- --------------------------------------------------------------------------------
JANUARY 31, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ASSETS (NOTES 4 AND 5)
Cash and cash equivalents $ 23,543
Other current assets 23,601
Subscriptions receivable 15,000
- --------------------------------------------------------------------------------
Total Current Assets 62,144
- --------------------------------------------------------------------------------
PROPERTY, PLANT, EQUIPMENT, AND MINE DEVELOPMENT
COSTS, NET 1,026,049
- --------------------------------------------------------------------------------
OTHER ASSETS
Restricted cash 17,880
Deposits 10,458
Mining claims 35,000
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Total Other Assets 63,338
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TOTAL ASSETS $ 1,151,531
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- --------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-2
<PAGE>
GWZ, WAZCO AND HERITAGE GOLD MINES
(A DEVELOPMENT STAGE COMPANY)
COMBINED BALANCE SHEET
- --------------------------------------------------------------------------------
JANUARY 31, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES
Accrued liabilities $ 150,520
Notes and advances to stockholders and related parties 1,006,677
Notes payable 36,640
Accrued interest 45,376
- --------------------------------------------------------------------------------
Total Current Liabilities 1,239,213
- --------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCY (NOTE 7)
STOCKHOLDERS' DEFICIT
Common stock 41,045
Additional paid-in capital 180,469
Deficit accumulated during the development stage (309,196)
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Total Stockholders' Deficit (87,682)
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TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $1,151,531
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- --------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-3
<PAGE>
GWZ, WAZCO AND HERITAGE GOLD MINES
(A DEVELOPMENT STAGE COMPANY)
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
PERIOD FROM
INCEPTION
YEAR ENDED YEAR ENDED (MAY 14, 1992)
JANUARY 31, JANUARY 31, THROUGH
1996 1995 JANUARY 31, 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Operating Revenue $ 0 $ 8,619 $ 29,996
- ------------------------------------------------------------------------------------------
Total Revenues 0 8,619 29,996
- ------------------------------------------------------------------------------------------
OPERATING COSTS
General and administrative 319,524 21,435 490,611
Depreciation 29,129 24,063 76,163
- ------------------------------------------------------------------------------------------
Total Operating Costs 348,653 45,498 (566,774)
- ------------------------------------------------------------------------------------------
LOSS FROM OPERATIONS (348,653) (36,879) (536,778)
- ------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Interest expense, net (9,345) (563) (9,628)
Other income 2,833 6,645 237,210
- ------------------------------------------------------------------------------------------
Total Other Income (Expense) (6,512) 6,082 227,582
- ------------------------------------------------------------------------------------------
NET LOSS $ (355,165) $ (30,797) $ (309,196)
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-4
<PAGE>
GWZ, WAZCO AND HERITAGE GOLD MINES
(A DEVELOPMENT STAGE COMPANY)
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Combined
Heritage Gold Mines Deficit Total
WAZCO Common Stock GWZ Common Stock Common Stock Combined Accumulated Stock-
------------------ ------------------ -------------------- Additional During the holders'
Shares Shares Shares Paid-In Development Equity
Issued Amount Issued Amount Issued Amount Capital Stage (Deficit)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of WAZCO
common stock,
May 14, 1992 25,000 $ 25,000 $ 180,469 $ 205,469
Net loss for the
period $ (9,889) (9,889)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance,
January 31, 1993 25,000 25,000 180,469 (9,889) 195,580
- -----------------------------------------------------------------------------------------------------------------------------------
Issuance of GWZ
common stock,
April 26, 1993 15,000 $ 15,000 15,000
Net income for
the year 86,655 86,655
- -----------------------------------------------------------------------------------------------------------------------------------
Balance,
January 31, 1994 25,000 25,000 15,000 15,000 180,469 76,766 297,235
- -----------------------------------------------------------------------------------------------------------------------------------
Net loss for the year (30,797) (30,797)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance,
January 31, 1995 25,000 25,000 15,000 15,000 180,469 45,969 266,438
- -----------------------------------------------------------------------------------------------------------------------------------
Issuance of Heritage
Gold Mines common
stock, July 21, 1995,
at par ($.001
per share) 310,000 $ 310 310
Issuance of WAZCO
common stock for
legal services 735 735 735
Net loss for the year (355,165) (355,165)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance,
January 31, 1996 25,735 $ 25,735 15,000 $ 15,000 310,000 $ 310 $ 180,469 $ (309,196) $ (87,682)
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
GWZ, WAZCO AND HERITAGE GOLD MINES
(A DEVELOPMENT STAGE COMPANY)
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(MAY 14, 1992)
YEAR ENDED YEAR ENDED THROUGH
JANUARY 31, JANUARY 31, JANUARY 31,
1996 1995 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (355,165) $ (30,797) $ (309,196)
Adjustments to reconcile net loss
to net cash used in
operating activities:
Depreciation 29,129 24,063 76,163
Stock issued 1,045 - 1,045
Changes in assets and liabilities
Other current assets (23,601) - (23,601)
Restricted cash (7,300) - (17,880)
Accrued liabilities 132,780 2,247 150,520
Accrued interest 35,860 9,516 45,376
- -----------------------------------------------------------------------------------------------
Net cash and cash equivalents
provided (used) by
operating activities (187,252) 5,029 (77,573)
- -----------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (114,889) (4,690) (87,060)
Mine development costs (251,262) (5,880) (375,848)
Construction in progress (77,239) (1,756) (159,935)
Deposits (6,938) - (10,458)
Mining claims - - (20,000)
- -----------------------------------------------------------------------------------------------
Net cash and cash equivalents
provided (used) by
investing activities (450,328) (12,326) (653,301)
- -----------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
GWZ, WAZCO AND HERITAGE GOLD MINES
(A DEVELOPMENT STAGE COMPANY)
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(MAY 14, 1992)
YEAR ENDED YEAR ENDED THROUGH
JANUARY 31, JANUARY 31, JANUARY 31,
1996 1995 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock for cash $ - $ - $ 112,500
Proceeds from notes payable to
related parties 373,677 - 373,677
Proceeds from notes payable 36,640 - 36,640
Advances from related parties 252,000 - 294,500
Repayment of notes payable - (1,525) (48,400)
Repayment of advances from
related parties (2,000) - (14,500)
- -----------------------------------------------------------------------------------------------
Net cash and cash equivalents
provided (used) by financing
activities 660,317 (1,525) 754,417
- -----------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 22,737 (8,822) 23,543
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 806 9,628 0
- -----------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 23,543 $ 806 $ 23,543
- -----------------------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Stock issued for services 1,045 - 1,045
Note payable issued to related party
for property, plant, equipment and
mine development costs - 327,000 327,000
Stock issued for subscriptions receivable - - 127,500
Notes payable issued for property,
plant and equipment - - 74,400
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE>
GWZ, WAZCO AND HERITAGE GOLD MINES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
WAZCO, Inc. (WAZCO), GWZ Management Company, Inc. (GWZ), and Heritage Gold
Mines, Inc. (Heritage Gold Mines) (A Development Stage Company) (all entities
collectively the "Company") were incorporated on May 14, 1992, April 26, 1993
and July 21, 1995, respectively, under the laws of the State of Nevada. The
Company is engaged in the business of mining, milling and refining gold ore from
its own claims and deposits for sale as 80% fine dore gold bars and 99.99% pure
gold bullion.
Once in production, the 80% fine dore gold bars will be recovered and refined by
the Company from its own free gold on site. The concentrates, after the free
gold and the Company production of 80% fine dore gold bars, will be further
refined under contract with outside independent processors and refiners into
99.99% pure gold bullion bars, which are then sold by the Company throughout
recognized outlets into the readily available domestic and international gold
market.
From its inception (considered to be May 14, 1992 for the purpose of these
combined financial statements), to January 31, 1996, the Company was in the
development stage. The Company has concentrated its activities to acquire,
explore, claim and permit mineral properties, acquire, repair, retrofit and
bring mining equipment to its intended use, develop the mineral properties to
get them ready for operations and search for a partner to contribute the working
capital necessary to operate the mine. From inception through January 31, 1996,
there have been no active mining operations.
The Company has incurred operating losses from inception through January 31,
1996 and has an accumulated deficit of $309,196 and negative working capital of
$1,177,069. During the year ended January 31, 1996, the Company's operations
used $187,252 of cash and the Company used $450,328 of cash in investing
activities. The Company's cash was provided from advances and notes from
related parties. Management expects that the Company's cash expenditures for
the fiscal year ended January 1, 1997 will be approximately $1,200,000.
Subsequent to year end, the Company reorganized its structure as follows (the
"Reorganization"):
- Heritage Gold Mines acquired 100% of the stock of WAZCO and GWZ from the
common stockholders. Accordingly, for the purpose of these financial
statements, Heritage Gold Mines is considered the surviving entity.
Heritage Gold Mines has 25 million shares of common stock authorized and
310,000 shares issued and outstanding as of January 31, 1996.
F-8
<PAGE>
GWZ, WAZCO AND HERITAGE GOLD MINES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND DESCRIPTION OF BUSINESS (CONTINUED)
- On March 6, 1996, Heritage Gold Mines merged with Heritage Mines, Ltd., a
"public shell," with no major assets or liabilities. From November 1995
through March 1996, Heritage Mines, Ltd., through its majority shareholder,
obtained $1,000,000 through a private placement. Funds were advanced to
the Company (Note 5) and were used for mining development costs and working
capital. In June 1996, the new merged entity raised an additional $125,000
in equity capital and $140,000 in debt financing.
- As part of the Reorganization, several notes payable to shareholders and
related parties were contributed to capital or converted to stock (See
Note 5).
Management believes that the additional equity raised in June 1996 will allow
the Company to start revenue generating operations within three months.
However, there can be no assurance such funds will be sufficient to support
profitable operations and additional financing may be necessary. No adjustments
have been made to the accompanying financial statements to provide for this
uncertainty.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF COMBINATION
The combined financial statements include the accounts of GWZ, WAZCO and
Heritage Gold Mines. All significant intercompany balances and transactions
have been eliminated.
MANAGEMENT'S ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS AND SUPPLEMENTAL CASH FLOW INFORMATION
Cash and cash equivalents consist of all cash balances and highly liquid
investments with a maturity of three months or less. Income taxes and interest
paid for all periods presented was immaterial.
F-9
<PAGE>
GWZ, WAZCO AND HERITAGE GOLD MINES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of financial instruments included in current assets and
liabilities approximates fair value because of the short maturity of these
items.
INVENTORIES
Ore and in-process inventories and materials and supplies are stated at the
lower of average cost or net realizable value. Precious metals are stated at
market value. Since there were no active operations, there was no such
inventory at January 31, 1996.
PROPERTY, PLANT, EQUIPMENT AND MINE DEVELOPMENT COSTS
Expenditures for new property, plant and equipment or expenditures which extend
the useful lives of existing property, plant and equipment are capitalized and
depreciated using the straight-line method at rates sufficient to depreciate
such costs over their estimated productive lives, which range from five to ten
years.
Mineral exploration costs are expensed as incurred. When it has been determined
that a mineral property can be economically developed, the costs incurred to
develop such property, including the costs to further delineate the ore body and
remove overburden to initially expose the ore body, are capitalized. Such costs
and estimated future development costs are amortized using a unit-of-production
method over the estimated life of the ore body. No amortization was recorded
for all years presented as there has been no active mining operations from
inception to January 31, 1996.
Interest expense allocable to the cost of developing mining properties and to
constructing new facilities is capitalized until operations commence. Interest
capitalized amounted to $26,088, $8,816 and $34,904 for the years ended January
31, 1996, 1995 and from inception through January 31, 1996, respectively.
Gains or losses from normal sales or retirements of assets are included in other
income or expense.
F-10
<PAGE>
GWZ, WAZCO AND HERITAGE GOLD MINES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MINING COSTS
In general, mining costs are charged to operations as incurred. Due to the
diverse waste-to-ore ratios encountered in mining certain of the Company's
deposits, mining costs for the deposits, to the extent they do not relate to
current production, are capitalized and then charged to operations when the
applicable gold is produced. No such cost was capitalized for all periods
presented in the accompanying financial statements.
RECLAMATION AND MINE CLOSURE COSTS
Estimated future reclamation and mine closure costs are based principally on
legal and regulatory requirements and are accrued and charged over the expected
operating lives of the Company's mines using a unit-of-production method. No
costs have been accrued to date since there have been no active mining
operations from inception to January 31, 1996.
ISSUANCE OF STOCK FOR SERVICES
Shares of the Company's common stock issued for services are recorded in
accordance with APB 16 at the fair market value of the stock issued or the fair
market value of the services provided, whichever value is the more clearly
evident.
3. PROPERTY, PLANT, EQUIPMENT AND MINE DEVELOPMENT
January 31, 1996
----------------
Equipment $ 237,762
Mine development 375,849
Construction in progress 486,934
---------------------------------------------------------------------
1,100,545
---------------------------------------------------------------------
Less accumulated depreciation (74,496)
---------------------------------------------------------------------
$ 1,026,049
---------------------------------------------------------------------
F-11
<PAGE>
GWZ, WAZCO AND HERITAGE GOLD MINES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS
3. PROPERTY, PLANT, EQUIPMENT AND MINE DEVELOPMENT (CONTINUED)
The Company's facilities, deposits, and claims cover an area of approximately 5
to 6 square miles located in the Knownothing Creek Mining District at the Forks
of Salmon in Northern California. The Company pays annual fees of a nominal
amount to the Federal Bureau of Land Management for the rights to use such land
to develop and extract minerals.
From the Company's inception, development plans and permits were applied for and
initial funding and equipment purchases were made. Plans of mining operations
were approved by the United States Forestry Service and other agencies.
Presently there are ten claims in various stages of exploration and development,
valued at $35,000. An initial geological study will be completed in the third
quarter of 1996.
Construction in progress consists of a mill and its ancillary facilities, which
are connected by Company-improved roads to various claims and operational mining
locations. The mill operation includes crushing, grinding, separation shaker
screen and concentration equipment, and a furnace house, saw mill house, and
dynamite storage house. The present operation is being developed to produce and
process 30 tons of gold ore per day per shift.
4. NOTES PAYABLE
Notes payable of $36,640 consist of three notes payable to individuals, bearing
interest at 10%, with principal and interest due on demand. These notes are
collateralized by the assets and production from the Company's mining operations
and are personally guaranteed by two of the Company's directors.
5. RELATED PARTY TRANSACTIONS
At January 31, 1996, the Company had the following notes and advances due to
stockholders and related parties:
Note payable to the Company's Chairman of
the Board, who is also a major shareholder,
bearing interest at 8%. This note and
accrued interest of $25,920 was forgiven
and contributed to capital subsequent to year
end in connection with the Reorganization
(Note 1). This note was collateralized by
all personal and certain mining properties. $ 353,000
F-12
<PAGE>
GWZ, WAZCO AND HERITAGE GOLD MINES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS
5. RELATED PARTY TRANSACTIONS (CONTINUED)
Note payable to Heritage Mines, Ltd. bearing interest
at 6%, with principal and interest due on
September 15, 1996. This note and accrued interest
of $2,158 was subsequently converted to stock in
connection with the Reorganization (Note 1). This
note was collateralized by the Company's mining
claims and production from its mining operations. 323,677
Advances from a related party, non-interest bearing, and
due on demand. Amount was converted to stock in
connection with the Reorganization (Note 1). 250,000
Note payable to a former officer of the Company,
bearing interest at 10%, with principal and
interest due on demand. This note was collat-
eralized by the assets and production from the
Company's mining operations and is personally
guaranteed by two of the Company's directors. 50,000
Advance from a stockholder, non-interest bearing, and
due on demand. Amount was contributed to
capital subsequent to year end in connection
with the Reorganization (Note 1). 30,000
-----------
$ 1,006,677
-----------
-----------
Subscriptions receivable of $15,000 relate to the incorporation of GWZ and were
settled as part of the Reorganization (Note 1).
An individual who provides legal services to the Company received 735 shares of
the Company's stock for legal services provided during the year ended January
31, 1996. Legal expense in connection with services rendered by this individual
was $32,411, $4,467 and $53,200 for the years ended January 31, 1996, 1995 and
from inception through January 31, 1996, respectively. As of January 31, 1996,
there was $50,000 in accrued legal fees due to this individual which was paid
subsequent to year end.
F-13
<PAGE>
GWZ, WAZCO AND HERITAGE GOLD MINES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS
5. RELATED PARTY TRANSACTIONS (CONTINUED)
A company owned by a director of the Company was paid $11,000 for services
provided to the Company during the year ended January 31, 1994.
Accrued liabilities include deferred compensation to officers of $67,500 at
January 31, 1996.
Other current assets include $16,161 in prepaid compensation to a related party
who provides bookkeeping services to the Company. Facilities and space rent are
also paid to this individual. Rent expense amounted to $6,300, $1,050 and
$7,350 for the years ended January 31, 1996, 1995 and from inception through
January 31, 1996, respectively.
Interest cost incurred to related parties was $33,664, $9,516 and $43,180 for
the years ended January 31, 1996, 1995 and inception through January 31, 1996,
respectively. As of January 31, 1996, accrued interest due to related parties
amounted to $43,180.
6. INCOME TAXES
WAZCO, GWZ, and Heritage Gold Mines filed separate returns for tax years 1994
and 1993 with different tax year ends. Upon reorganization with Heritage Gold
Mines and Heritage Mines, Ltd., they will file consolidated returns with a
January 31, 1996 year end. The Company has incurred tax losses for all entities
and all periods presented. As a result, no provision has been recorded and the
tax benefit of net operating losses was offset by valuation allowances of the
same amount.
As of January 31, 1996, the Company had combined net operating loss
carryforwards available to offset future taxable income of approximately
$400,000, which expire at various times through 2011. For tax purposes, only a
portion of the tax net operating loss can be utilized in any given year if the
company which generated the loss has more than 50 percent change in ownership in
a three year listing period. Accordingly, the Reorganization may result in
limitations on the use of the NOL described above.
F-14
<PAGE>
GWZ, WAZCO AND HERITAGE GOLD MINES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO COMBINED FINANCIAL STATEMENTS
7. COMMITMENTS AND CONTINGENCY
NONCANCELABLE OPERATING LEASES
The Company occupies its facilities under a noncancelable operating lease which
expires on January 31, 1999. Rent expense for the year ended January 1, 1996
was $531.
At January 31, 1996, future minimum lease payments are as follows:
YEAR ENDED JANUARY 31, Amount
---------------------------------
1997 $ 31,884
1998 31,884
1999 31,353
---------------------------------
$ 95,121
---------------------------------
---------------------------------
LITIGATION SETTLEMENT
In May 1993, WAZCO entered into a joint venture agreement with Sky Scientific,
Inc. ("Sky"), a California corporation, with the purpose of raising equity to
develop its mining operations. In 1994, Sky issued stock and deposited $220,000
in exchange for the Company's twelve mining claims. The funds were recorded in
other income in 1994. Other than this transaction, the joint venture was never
consummated and WAZCO sued Sky to recover its claims, and Sky countersued. In
March 1996, the litigation was settled as follows: Sky was given two of the
twelve claims, the remaining ten claims were returned to WAZCO, and the stock
issued to WAZCO was cancelled.
8. RESTRICTED CASH
As of January 31, 1996, the Company had $17,880 in restricted cash to serve as
collateral for several U.S. Forest Service reclamation bonds. The bonds are
required to insure reclamation and stabilization of surface resources, and are
subject to yearly changes in the Company's operations and costs of reclamation
and erosion control.
F-15
<PAGE>
HERITAGE MINES, LTD.
INDEX TO
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Pro Forma Condensed Consolidated Financial Statements F-17 to F-19
Notes to Pro Forma Condensed Consolidated Financial
Statements F-20 to F-21
F-16
<PAGE>
HERITAGE MINES, LTD.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEAR ENDED JANUARY 31, 1996
(UNAUDITED)
--------------------
The following pro forma condensed consolidated balance sheet (unaudited) as of
January 31, 1996 and the pro forma condensed consolidated statement of
operations (unaudited) for the year ended January 31, 1996, give effect to the
acquisition of all the outstanding shares of Heritage Gold Mines, Inc. by
Heritage Mines, Ltd., which acquisition was completed on March 6, 1996 and
accounted for as a reverse merger. Also reflected is the Reorganization to
which the acquisition was contingent upon (see Note 1 to the pro forma financial
statements). The pro forma consolidated information is based on the historical
financial statements of Heritage Gold Mines, Inc. (including its post
Reorganization subsidiaries GWZ Management Company, Inc. (GWZ) and WAZCO, Inc.
(WAZCO)) and Heritage Mines, Ltd. and includes assumptions and adjustments set
forth in the accompanying notes to the pro forma condensed consolidated
financial statements. The pro forma consolidated balance sheet presents the
financial position of Heritage Mines, Ltd. as if Heritage Gold Mines, Inc. had
acquired Heritage Mines, Ltd. as of January 31, 1996. The pro forma condensed
consolidated statement of operations presents the results of operations of
Heritage Mines, Ltd. as if Heritage Gold Mines, Inc. had acquired Heritage, Ltd.
as of February 1, 1995.
The pro forma condensed consolidated balance sheet (unaudited) as of January 31,
1996 and the pro forma condensed consolidated statement of operations
(unaudited) for the year ended January 31, 1996 may not be indicative of the
results that actually would have occurred if the combination had been in effect
on the dates indicated or which may be obtained in the future. These pro forma
consolidated financial statements (unaudited) should be read in conjunction with
the Heritage Mines, Ltd. audited financial statements and notes for the year
ended January 31, 1996 included in Heritage Mines, Ltd. Annual Report on Form-
10KSB, and the GWZ, WAZCO and Heritage Gold Mines, Inc. audited combined
financial statements and notes contained elsewhere herein.
F-17
<PAGE>
HERITAGE MINES, LTD.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF AND FOR THE YEAR ENDED JANUARY 31, 1996
(UNAUDITED)
--------------------
<TABLE>
<CAPTION>
WAZCO, GWZ
and Heritage
Mines, Inc. Heritage Pro forma
Consolidated Mines, Ltd. Adjustments Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 23,543 $ 53 $ 551,323 [2] $ 574,919
Other current assets 23,601 23,601
Subscriptions receivable 15,000 (15,000) [3] -
- -------------------------------------------------------------------------------------------------------------------
Total Current Assets 62,144 53 536,323 598,520
- -------------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT, EQUIPMENT, AND
MINE DEVELOPMENT COSTS, NET 1,026,049 1,026,049
OTHER ASSETS 63,338 396 63,734
- -------------------------------------------------------------------------------------------------------------------
Total Assets 1,151,531 449 536,323 1,688,303
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES
Accrued liabilities 150,520 150,520
Notes and advances to stockholders
and related parties 1,006,677 (323,677) [2] 50,000
(633,000) [3]
Notes payable 36,640 36,640
Accrued interest 45,376 (39,837) [3] 5,539
- -------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 1,239,213 - (996,514) 242,699
- -------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock 41,045 8,585 (8,585) [1] 41,045
Additional paid-in capital 180,469 2,161 (2,161) [1] 1,838,306
1,000,000 [1]
657,837 [3]
Deficit accumulated during the
development stage (309,196) (10,297) 10,746 [1] (433,747)
(125,000) [2]
- -------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity (Deficit) (87,682) 449 1,532,837 1,445,604
- -------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders'
Equity (Deficit) $1,151,531 $ 449 $ 536,323 $1,688,303
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO PRO FORMA FINANCIAL STATEMENTS.
F-18
<PAGE>
HERITAGE MINES, LTD.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
AS OF AND FOR THE YEAR ENDED JANUARY 31, 1996
(UNAUDITED)
--------------------
<TABLE>
<CAPTION>
WAZCO, GWZ
and Heritage
Mines, Inc. Heritage Pro forma
Consolidated Mines, Ltd. Adjustments Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Operating Revenue - -
- -------------------------------------------------------------------------------------------------------------------
Total Revenues - - - -
- -------------------------------------------------------------------------------------------------------------------
OPERATING COSTS
General and administrative $ 319,524 $ 10,297 $ 329,821
Depreciation 29,129 - - 29,129
- -------------------------------------------------------------------------------------------------------------------
Total Operating Costs 348,653 10,297 - 358,950
- -------------------------------------------------------------------------------------------------------------------
LOSS FROM OPERATIONS (348,653) (10,297) - (358,950)
- -------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Interest expense, net (9,345) (9,345)
Other income 2,833 2,833
Other expense - (125,000) [2] (125,000)
- -------------------------------------------------------------------------------------------------------------------
(6,512) - (125,000) (131,512)
- -------------------------------------------------------------------------------------------------------------------
Pro forma net loss $ (355,165) $ (10,297) $ (125,000) $ (490,462)
- -------------------------------------------------------------------------------------------------------------------
Pro forma net loss per share - $ (0.0030) $ (0.0190) $ (0.0490)
- -------------------------------------------------------------------------------------------------------------------
Pro forma common shares outstanding - 3,394,789 6,566,000 [4] 10,000,000
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO PRO FORMA FINANCIAL STATEMENTS.
F-19
<PAGE>
HERITAGE MINES, LTD.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
AS OF AND FOR THE YEAR ENDED JANUARY 31, 1996
(UNAUDITED)
--------------------
1. GENERAL
The pro forma condensed consolidated balance sheet (unaudited) as of
January 31, 1996 and the pro forma condensed consolidated statement of
operations (unaudited) for the year ended January 31, 1996 reflect the
following reorganization (the "Reorganization"):
- Heritage Gold Mines, Inc. acquired 100% of the stock of WAZCO and GWZ
from the common stockholders. In accordance with SEC practice, the
exchange of shares between companies under common control is accounted
for as if the combinations were a pooling of interest. Heritage Gold
Mines is presented herein consolidated with its two subsidiaries,
WAZCO and GWZ.
- On March 6, 1996, Heritage Gold Mines, Inc. merged with Heritage
Mines, Ltd., a "public shell," with no major assets or liabilities.
From November 1995 through March 1996, Heritage Mines, Ltd., through
its majority shareholder, obtained $1,000,000 through a private
placement. Of these funds, as January 31, 1996, $323,677 were
advanced to the Company and were used for mining development costs and
working capital.
- As part of the Reorganization, several notes payable to shareholders
and related parties were contributed to capital or converted to stock.
These pro forma consolidated financial statements (unaudited) represent the
consolidated financial position and operations of Heritage Mines, Ltd. and
Heritage Gold Mines, Inc. as if the Reorganization had occurred February 1,
1995.
These pro forma consolidated financial statements (unaudited) do not
purport to be indicative of the results that actually would have been
obtained if the operations were combined for the year ended January 31,
1996, and this presentation is not intended to be a projection of future
results or trends.
F-20
<PAGE>
HERITAGE MINES, LTD.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
AS OF AND FOR THE YEAR ENDED JANUARY 31, 1996
(UNAUDITED)
--------------------
2. DESCRIPTION OF PRO FORMA ADJUSTMENTS
(1) Adjustment to reflect the reverse acquisition of Heritage Mines, Ltd.
and elimination of its capital stock.
(2) Adjustment to reflect the $1,000,000 infusion of capital of which
$323,677 had been advanced to Heritage Gold Mines, Inc. at January 31,
1996 and $125,000 in expenses incurred in connection with the
acquisition of Heritage Mines, Ltd.
(3) Adjustment to reflect the conversion of debt, and related accrued
interest, into stock of Heritage Mines, Ltd.
(4) Pro forma loss per share is computed using the weighted average number
of shares assuming that all the shares issued in connection with the
Reorganization were outstanding for the entire year. Common stock
equivalents were not considered in the loss per share calculation as
the effect would have been anti-dilutive.
F-21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-START> JAN-31-1996
<PERIOD-END> JAN-31-1996
<CASH> 23,543
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 62,144
<PP&E> 1,100,545
<DEPRECIATION> 74,496
<TOTAL-ASSETS> 1,151,531
<CURRENT-LIABILITIES> 1,239,213
<BONDS> 0
0
0
<COMMON> 41,045
<OTHER-SE> 180,469
<TOTAL-LIABILITY-AND-EQUITY> 1,151,531
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,345
<INCOME-PRETAX> (355,165)
<INCOME-TAX> 0
<INCOME-CONTINUING> (355,165)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (355,165)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
