U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
X : Quarterly report under section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended July 31, 1998.
__: Transition report under section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] for the transition period
from _________ to _________.
Commission File No: 0-25798
HERITAGE MINES, LTD.
(Name of small business in its charter)
Colorado 84-1293168
(State or other (IRS Employer ID. No.)
jurisdiction of Incorporation)
1199 Main Avenue, Ste. 221
Durango, Colorado
81301
(Address of Principal Office) Zip Code
Issuer's telephone number: (970) 385-0374
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 past 12
months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes _X__ No ____
Applicable only to issuers involved in bankruptcy proceedings during
the past five years
Check whether the issuer has filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes ____
No ____
Applicable only to corporate issuers
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 6,949,428 as of
September 11, 1998.
Transitional Small Business Disclosure
Format (Check one):
Yes ____ No X <PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS AND EXHIBITS
(b) Financial statements for Heritage Mines, Ltd. as and for
the quarter ending July 31, 1998, the six months ending July 31,
1998, and the comparable periods of the preceding fiscal year.
FINANCIAL STATEMENTS
(A Development Stage Company)
HERITAGE MINES, LTD.
Quarter ended July 31, 1998<PAGE>
HERITAGE MINES, LTD.
(A Development Stage Company)
Condensed Consolidated Balance Sheet
Condensed Consolidated Statements of Operations
Condensed Consolidated Statements of Cash Flows
Notes to Condensed Consolidated Financial Statements
<PAGE>
HERITAGE MINES, LTD.
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEET
as of July 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents 19,211
Other current assets 2,622
Total Current Assets 21,833
PROPERTY,
EQUIPMENT AND MINE
DEVELOPMENT COSTS,
NET OF ACCUMULATED
DEPRECIATION 2,037,017
OTHER ASSETS
Bushmaster deferred
acquisition costs 139,847
Other 62,969
Total other assets 202,816
Total Assets 2,261,666
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable 232,898
Accrued expenses and other
liabilities 444,125
Notes payable and current
maturities of long term debt 194,466
Convertible note payable 600,000
Convertible debentures (including
related parties of $320,000) 960,000
Total current liabilities 2,431,489
LONG TERM DEBT 18,205
Total liabilities 2,449,694
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, no par value:
authorized 10,000,000 shares,
no shares issued and
outstanding -
Common stock, $.0025 stated
value: authorized 100,000,000
shares, issued and outstanding
6,939,428 shares 17,349
Additional paid-in
capital 3,211,230
Deficit accumulated
during the
development stage (3,416,607)
TOTAL STOCKHOLDERS' EQUITY
(DEFICIT) (188,028)
TOTAL LIABILITIES
AND STOCKHOLDERS'
EQUITY (DEFICIT) 2,261,666
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
HERITAGE MINES, LTD.
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended July 31 Ended July 31
1998 1997
<S> <C> <C>
OPERATING REVENUES - -
OPERATING COSTS:
General and
Administrative 253,923 203,916
Depreciation 15,900 13,097
Total operating
costs 269,823 217,013
Loss from
Operations (269,823) (217,013)
OTHER INCOME (EXPENSE):
Interest expense, net (57,125) (18,075)
Other Income - -
Total Other Income
(Expense) (57,125) (18,075)
NET LOSS (326,948) (235,088)
Basic and Diluted
Net loss per share (.05) (.03)
Weighted average
common shares
outstanding 6,721,186 7,830,792
</TABLE>
See accompanying notes to condensed consolidated financial statements.<PAGE>
HERITAGE MINES, LTD.
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Period
from
Inception
Six Months Six Months (May 14,
Ended July 31 Ended July 31 1992) thru
1998 1997 July 31, 1998
<S> <C> <C> <C>
OPERATING REVENUES - 3,536 67,019
OPERATING COSTS:
General and
Administrative 496,491 409,282 3,183,218
Depreciation 31,800 30,424 244,969
Total operating
costs 528,291 439,706 3,428,187
Loss from
Operations (528,291) (436,170) (3,361,168)
OTHER INCOME (EXPENSE):
Interest expense, net (110,898) (35,520) (292,648)
Other Income - - 237,210
Total Other Income
(Expense) (110,898) (35,520) (55,438)
NET LOSS (639,189) (471,690) (3,416,606)
Basic and Diluted
Net loss per share (.10) (.05) (1.11)
Weighted average
common shares
outstanding 6,606,899 9,158,996 3,080,242
</TABLE>
See accompanying notes to condensed consolidated financial statements.<PAGE>
HERITAGE MINES, LTD.
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Period
from Inception
Six Months Six Months (May 14, 1992)
Ended Ended through
July 31 July 31 July 31
1998 1997 1998
<S> <C> <C> <C>
OPERATING REVENUES:
Net Loss (639,189) (471,690) (3,416,606)
Adjustments to reconcile net loss to cash used
in operating activities:
Depreciation 31,800 30,424 244,969
Common stock issued
for services 65,785 - 90,830
Stockholder compensation
contributed to
capital - - 131,600
Convertible debentures
and notes payable issued
for services, including
$41,000 to related parties - - 101,000
Changes in operating assets and liabilities:
Other current assets (1,122) (18,149) (2,622)
Accounts payable accrued
expenses and other
liabilities 310,315 231,988 830,845
Net cash used in
operating activities (232,411) (227,427) (2,019,984)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property
and equipment (4,689) - (247,333)
Mine development
costs - (24,486) (1,230,583)
Construction in
progress - (9,034) (293,006)
Bushmaster deferred
acquisition costs (4,344) - (139,847)
(Increase) decrease
in other assets 1,693 (2,210) (47,969)
Net cash used in
investing activities (7,340) (35,730) (1,958,738)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issuance of common
stock for cash 150,000 125,000 1,019,475
Proceeds from notes
payable to related
parties 36,035 34,700 1,530,235
Proceeds from convertible
and other notes
payable 8,626 85,000 745,266
Proceeds from convertible
debentures, including
related parties of $215,000
from inception to date 35,000 175,000 796,000
Repayment of notes payable
and long term debt (3,184) (2,229) (57,843)
Repayment of notes
payable to and advances
from related parties - - (35,200)
Net cash provided from
financing activities 226,477 417,471 3,997,933
NET INCREASE
(DECREASE) IN
CASH AND CASH
EQUIVALENTS (13,274) 154,314 19,211
CASH AND CASH
EQUIVALENTS,
BEGINNING OF
PERIOD 32,485 1,078 -
CASH AND CASH
EQUIVALENTS,
END OF PERIOD 19,211 155,392 19,211
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
HERITAGE MINES, LTD.
(A Development Stage Company)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
<TABLE>
<CAPTION>
Period
from Inception
Six Months Six Months (May 14, 1992)
Ended Ended through
July 31 July 31 July 31
1998 1997 1998
<S> <C> <C> <C>
Stock issued for services 65,785 - 90,830
Stockholders' compensation
contributed to capital - - 131,600
Equipment exchanged for
mining claims - - 15,000
Notes payable issued to
related party for property,
equipment and mine
development costs - - 327,000
Notes payable issued for
property and equipment - - 106,094
Notes payable converted
to common stock - - 141,885
Stock issued for
subscriptions
receivable - - 127,500
Stock issued for
equipment - - 92,969
Notes payable exchanged for
convertible debentures,
all involving related
parties - - 89,000
Accrued interest capitalized
on notes payable - - 33,119
Issuance of stock in connection
with the reorganization - - 1,713,413
Common stock exchanged for
contingent notes payable - - -
</TABLE>
See accompanying notes to condensed consolidated financial statements.<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS:
(July 31, 1998 - Unaudited)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have
been prepared in accordance with Securities and Exchange
Commission requirements for interim financial statements. Therefore,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. The accompanying financial statements should be read in
conjunction with the Company's Form 10-KSB for the year ended
January 31, 1998.
The results of operations for the interim periods shown in this report
are not necessarily indicative of the results to be expected for the full
year. In the opinion of management, the information contained herein
reflects all adjustments necessary to make the results of operations for
the interim periods a fair statement of such operations. All such
adjustments are of a normal recurring nature.
Development Stage
From its inception (considered to be May 14, 1992 for the purpose of
these condensed consolidated financial statements), to July 31, 1998,
the Company has been in the development stage. The Company has
concentrated its activities to acquire, explore, claim and permit
mineral properties, to develop the mineral properties to get them
ready for operations and to raise capital to finance these activities.
From inception through July 31, 1998, there have been no active
mining operations, although small test runs have generated minimal
revenues.
Going Concern
The Company has incurred operating losses from inception through
July 31, 1998, has an accumulated deficit of $3,416,607 and negative
working capital of $2,409,656. Also, the Company is in default of its
debenture agreement and certain notes payable and a convertible note
payable are past due and the lenders have demanded payment (see
Note 3). Management expects that the Company's cash expenditures
for the fiscal year ended January 31, 1999, will not be less than
$600,000. Larger expenditures may be incurred based on the
Company's development projects, and available cash resources from
operating cash flow and/or from additional financing.
As discussed in Note 2, the Company has signed a letter of intent that
involves a business arrangement providing for investment of working
capital and development funding. Additional financing will be
required for the Company to meet current obligations. The Company
continues to be in discussions with several different parties to obtain
additional debt and/or equity financing.
There can be no assurance that the proposed business arrangement
discussed in Note 2 will be consummated or that additional funds can
be raised from other sources. Failure to consummate the proposed
business arrangement and to obtain other financing would raise
substantial doubts about the Company's ability to continue as a going
concern. No adjustments have been made to the accompanying
condensed financial statements to provide for this uncertainty.
2. PROPOSED BUSINESS ARRANGEMENT
As disclosed in the Company's Form 10-QSB for the quarter ended
April 30, 1998, the Company and Ausdrill, an Australian
construction mining company, signed a letter of intent which sets forth
a business arrangement between the companies providing for capital
investment by Ausdrill in exchange for common equity in the
Company, limited cash flow interest in the Bushmaster Mines, Inc.
(Bushmaster) Million Mountain mining project and optional joint
venture participation in the Company's Bowerman project.
Bushmaster, a Guyana S. A. joint stock company that is also in the
development stage is one-third owned by the Company's President.
Among other things, the definitive agreement for this business
arrangement was subject to satisfactory completion of due diligence
procedures by Ausdrill and preparation of an initial operating plan and
budget for the Million Mountain project.
Ausdrill completed certain due diligence procedures during the month
of June 1998 and the Company further refined its detailed work plan
for the Million Mountain project. As a result, the Company and
Ausdrill re-negotiated the terms of the letter of intent. A summary of
the revised terms of the business arrangement with Ausdrill is as
follows:
A. Completion of Short-term Infill Drilling Program.
As an extension of Ausdrill's due diligence, the Company and
Ausdrill worked together during August 1998 to complete an
additional in-fill drilling program.
Ausdrill has provided funding of $50,000 for the in-fill program and
concurrently purchased an additional 50,000 restricted common shares
of the Company for $25,000 to be used for working capital (as a part
of the original letter of intent Ausdrill purchased 200,000 restricted
common shares for $100,000).
B. Heritage and Ausdrill Joint Venture.
Assuming the parties agree to proceed under the revised terms, it is
contemplated that the companies will enter into a 50:50 joint venture
agreement as follows:
(1) Concurrent with the closing of the joint venture
agreement, Ausdrill will purchase an additional 250,000 restricted
common shares of the Company for $125,000.
The joint venture will be managed by a management committee
consisting of a representative from Ausdrill and a representative of the
Company. The committee will approve work plans and budgets.
Upon closing and purchase of the restricted common shares, Ausdrill
may at its election nominate a qualified candidate for appointment to
the Company's Board of Directors.
(2) Ausdrill will provide for the Million Mountain project
initial development funding of $900,000 and certain heavy mining
equipment to be rented to the joint venture at cost plus 15%. If
more than $900,000 is required for the initial development, the
Company will provide the additional funding. If the Company fails to
cover capital overruns, if any, Ausdrill can provide the additional
funding. The overrun amount plus a premium of two times the
overrun would be added to Ausdrill's capital recovery.
(3) Upon commissioning of trial mining, Ausdrill will receive
100% of joint venture net cash flow, after reimbursement of all direct
and allocable costs of the Company related to the joint venture and
after deduction of $25,000 monthly to be paid to the Company for
non-allocable costs, until Ausdrill has received an amount equal to its
capital investment of $950,000, interest cost on the investment,
$500,000 in cash and overrun recovery, if any. Thereafter, joint
venture cash flow will be distributed proportionate to joint venture
participating interest.
(4) The Company will commit not less than 20% of its joint
venture cash flow to concession-wide exploration, as directed by the
management committee, not to exceed $40,000 per month, and except
for months in which 80% of the Company's cash flow interest is less
than $25,000.
(5) At any time during the joint venture after recovery of its
capital investment, Ausdrill can elect to exchange its joint venture
interest for 900,000 restricted common shares of the Company plus
900,000 warrants exercisable for one year from date of issue at $1.25
per share. If at any time prior to exercise of its conversion rights, the
Company issues common shares such that its total outstanding shares
exceed 8 million, then upon conversion, the Company will issue to
Ausdrill, additional warrants with an exercise price equal to the
dilutive stock issue, and in a number that allows Ausdrill to maintain
a 22% interest in the Company.
After production of not less than 250,000 ounces of gold by the joint
venture, the Company can compel conversion of Ausdrill's joint
venture interest into common shares and warrants of the Company.
Upon conversion of Ausdrill's joint venture interest, Ausdrill will be
entitled to one additional seat on the Company's Board of Directors.
(6) If either of the companies elects to sell its joint venture
interest, the other company shall have the right of first refusal to
acquire the interest to be sold.
C. Bushmaster Stock Purchase Option.
The joint venture will enter into a five year purchase option
agreement to acquire the outstanding capital shares of Bushmaster. It
is contemplated that the purchase agreement would include the
following key elements:
(1) After capital recovery by the joint venture, shareholders of
Bushmaster will receive option payments amounting to 24% of the net
cash flow generated by Million Mountain production up to a total of
200,000 ounces of gold. However, if capital recovery by Ausdrill is
not accomplished within 270 days from the date of Ausdrill
development funding, for each 30 day delay in completion of capital
recovery, Ausdrill's share of the net cash flow interest paid to
Bushmaster shareholders will be reduced by 6%.
(2) The joint venture must diligently explore Million
Mountain and complete a feasibility study to exercise its purchase
option. It also must expend not less than 10% of joint venture net
cash flow on exploration and completion of the feasibility study
during the option period.
(3) The joint venture may purchase all the capital shares of
Bushmaster at any time during the option period. The purchase price
will be $20 per recoverable ounce of gold. The recoverable ounces for
calculating the purchase price will be the greater of 1,000,000 ounces
or the recoverable, proven\probable reserve determined by the
feasibility study. All option payments made to the Bushmaster
shareholders under the option agreement will be credited against the
purchase price.
(4) The joint venture will lease the Million Mountain
concession, including equipment for exploration and production for a
term of five years. The joint venture will pay all Guyana government
obligations, and will make lease payments aggregating $200,000.
Bushmaster will waive equipment rental fees in exchange for
forgiveness of certain obligations it has to the Company.
D. Million Mountain Property Purchase Option.
In exchange for $25,000 at closing, a Bushmaster partner will waive
royalties under an existing property agreement for a period of six (6)
months, or until capital recovery by the joint venture, whichever is
the first to occur.
In exchange for the exploration and development of Million Mountain,
the Bushmaster partner will grant to the joint venture a five year
option to purchase his underlying property rights for $2.5 million,
which sum will be credited for any payments made under the existing
property agreement between Bushmaster and the concession holder.
E. Bowerman Joint Venture.
The proposed business arrangement gives Ausdrill a two-year
exclusive option to enter into a 50:50 joint venture on the Bowerman
project by spending the first $500,000 for its development. If the
Company elects to proceed with the Bowerman project within the two-
year option period, Ausdrill must fund 50% of cash calls or lose its
participation rights. Using up to $35,000 of its own funds, Ausdrill
must complete a resampling program by year-end 1998.
The definitive agreement with Ausdrill is subject to certain conditions,
including the satisfactory completion of the in-fill drilling program
and completion of the Bushmaster purchase option and lease
agreements. The Company anticipates closing of the definitive
agreement to occur on or about September 24, 1998. There can be no
assurance that the proposed business arrangement with Ausdrill will
be consummated.
3. NOTES PAYABLE AND CONVERTIBLE DEBENTURES
Notes Payable and Convertible Note Payable
Notes payable in the accompanying condensed consolidated balance
sheet include demand notes at 10% interest to four individuals with an
aggregate principal balance of $119,758 at July 31, 1998 (including
$69,513 to a related party). After making demand for payment
during fiscal 1998, the note terms were renegotiated whereby the
notes, including accrued interest, were due October 31, 1997, and
existing unpaid interest was added to the note balances. The notes are
secured by certain mining assets of the Company and are guaranteed
by a principal stockholder and former director of the Company. The
notes were not paid on October 31, 1997 because of the lack of
funding and are currently past due. The Company issued the
borrowers 59,879 of its Class A warrants to delay any legal action for
non-payment on or before January 31, 1998. In March, 1998, a court
judgement was entered in favor of the borrowers for the amounts due,
plus attorney fees and costs. No steps have been taken to enforce the
judgement. The Company intends to satisfy the obligation when
additional financing is obtained.
As of July 31, 1998, the accompanying condensed consolidated
balance sheet includes a convertible note payable with a principal
balance of $600,000 that was due and payable on June 1, 1998. The
note payable and related accrued interest have not been paid because
of the lack of funds. The lender has demanded payment of this
obligation and has threatened to take legal action.
Convertible Debentures
Since January 31, 1998, the Company has been in technical default of
paragraph 4(F) of its debenture agreement that required the Company
to obtain additional working capital (exclusive of working capital
obtained through the sale of the debentures) of not less than
$2,000,000 by January 31, 1998. This additional working capital has
not been obtained. If any events of default occur as specified in the
debenture agreement, debenture holders may, so long as the condition
exists, declare the entire principal and accrued interest on the
debentures immediately due and payable, by notice to the Company
and the Escrow Agent. One debenture holder with debentures
aggregating $50,000 has contacted the Company and demanded
payment of principal and interest.
Under the terms of the debenture agreement and related Escrow
Agreement, once the Company receives notice from the Escrow Agent
that a majority of debenture holders have given notice of the
occurrence of an event of default, the Company has sixty days to cure
the default to avoid initiation of an enforcement action by the Escrow
Agent on behalf of the debenture holders. No notice of default has
been received from the Escrow Agent.
During the quarter ended July 31, 1998, the Company's Board of
Directors approved a special conversion offering to holders of
convertible debentures which, if elected, would result in conversion of
principal and interest of debentures into restricted Heritage common
shares at the rate of $.75 per share. This compares to a conversion
price of $2.50 per share in the debenture agreement. This special
conversion is contingent upon consummation of a definitive agreement
with Ausdrill that provides for Bushmaster development funding. In
the event that the agreement with Ausdrill is not consummated, all
elections to accept the special conversion offer will be cancelled and
the existing terms of the outstanding debentures will continue without
modification. In the event the Ausdrill transaction is consummated,
the debentures of all debenture holders who have elected to accept the
special conversion offer will be cancelled. The debentures held by
any debenture holders who elect not to accept the special conversion
offer will remain outstanding without any modification in terms.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
AND PLAN OF OPERATION
Overview
The Company's condensed consolidated balance sheet as of July 31,
1998, reflects total assets of $2,261,666, the most significant
component of which is property, equipment and mine development
costs of $2,037,017. The balance sheet as of July 31, 1998 also
reflects negative working capital of $2,409,656, a deficit accumulated
during the development stage of $3,416,607, and a total stockholders'
deficit of $188,028.
For the quarter ended July 31, 1998, the Company had a net loss of
$326,948 compared to a net loss of $235,088 for the same period last
year. Interest expense increased to $57,125 for the current quarter
compared to $18,075 for the same period last year primarily because
of interest expense on the convertible debentures issued subsequent to
the first quarter of fiscal 1998. General and administrative expenses,
including but not limited to payroll costs, the cost of maintaining the
corporate headquarters, travel expense and professional fees, totaled
$253,923 for the quarter ended July 31, 1998 compared to $203,916
for the same period last year.
For the six month period ended July 31, 1998, the Company had a net
loss of $639,189 compared to a net loss of $471,690 for the same
period last year. Interest expense increased to $110,898 for the
current six month period compared to $35,520 for the same period
last year primarily because of interest expense on the convertible
debentures issued subsequent to the first quarter of fiscal 1998.
General and administrative expenses, including but not limited to
payroll costs, the cost of maintaining the corporate headquarters,
travel expense and professional fees, totaled $496,491 for the six
month period ended July 31, 1998 compared to $409,282 for the same
period last year.
The Company raised a total of $226,477 from financing activities
during the first six months of the current year, including proceeds
from the issuance of common stock (including $125,000 from
Ausdrill), notes and convertible debentures payable to related parties
and others. Net cash to fund operating activities totaled $232,411 for
the six months ended July 31, 1998 and $7,340 of cash was used to
fund investing activities.
Liquidity and Capital Resources
As of July 31, 1998, the Company had a working capital deficit of
$2,409,656. Included in current liabilities in the accompanying
condensed consolidated balance sheet are convertible debentures
aggregating $960,000. The Company is in technical default of its
debenture agreement as a result of its failure to raise additional
working capital of at least $2,000,000 by January 31, 1998, as
required by the terms of that agreement. As long as the default
exists, the debenture holders have the right to declare the entire
principal and accrued interest on the debentures immediately due and
payable. As of September 11, 1998, one debenture holder with
debentures aggregating $50,000 has contacted the Company and
demanded payment of principal and interest. As discussed further
under Note 3 of Notes to Condensed Consolidated Financial
Statements included elsewhere herein, no notice of default has been
received from the Escrow Agent.
As of July 31, 1998, the Company's current liabilities include notes
payable of $ 119,758 and a convertible note payable of $600,000 that
are past due and the lenders have demanded payment. The Company
does not currently have the funds to satisfy these obligations.
As discussed in Note 2 of Notes to the Condensed Consolidated
Financial Statements included elsewhere herein, the Company has
signed a letter of intent that involves a business arrangement providing
for an investment of working capital and development funding.
Additional financing will be required for the Company to meet current
obligations and to continue operating. The Company continues to be
in discussions with several different parties to obtain additional debt
and/or equity financing.
As discussed further in Note 3 of Notes to the Condensed
Consolidated Financial Statements included elsewhere herein, the
Company's Board of Directors has approved a special conversion
offering to holders of its convertible debentures aggregating $960,000
which, if elected, would result in conversion of principal and interest
of debentures into restricted Company common shares at the price of
$.75 per share. This conversion offering is contingent upon
consummation of the pending agreement with Ausdrill. Also, in view
of the Company's working capital deficit and the pending agreement
with Ausdrill, during the quarter ended July 31, 1998, the Board of
Directors authorized the issuance of up to an additional 1,000,000
shares of restricted common stock at a price of $.50 per share. As of
September 11, 1998, 105,000 common shares have been issued in
connection with this offering, resulting in net proceeds to the
Company of $52,500.
There can be no assurances that the proposed business arrangement
will be consummated or that sufficient, additional funds can be raised
from other sources. Failure to consummate the proposed business
arrangement and to obtain other financing would raise substantial
doubts about the Company's ability to continue as a going concern.
Plan of Operations
The long-term goal of the Company is to become a self-sustaining,
medium sized precious metals exploration and mining Company that
has a solid foundation of credible reserves which can be developed
and produced at a low cost. The plan of operations of the Company
for the next twelve months is to obtain additional financing in order to
operate and to provide funds necessary for the exploration and
development of its Bowerman and Bushmaster projects. There can be
no assurance that the Company will be able to obtain additional
financing that will enable it to complete its plan of operations.
This report contains various forward-looking statements that are based
on the Company's beliefs, as well as assumptions made by and infor-
mation currently available to the Company. When used in this report,
the words "believe," "expect", "anticipate", estimate and similar
expressions are intended to identify forward-looking statements. Such
statements may include statements regarding reserves, resources,
mineralized material or deposits, mining methods, political and related
matters, planned levels of exploration, and the like, and are subject to
certain risks, uncertainties and assumptions which could cause actual
results to differ materially from projections or estimates contained
herein. Factors which could cause actual results to differ materially
include, among others, unanticipated grade, geological, metallurgical,
processing or other problems, conclusions of feasibility studies,
changes in project parameters as plans continue to be refined, the
timing of receipt of governmental permits, results of current or
planned exploration activities, environmental costs and risks, changes
in the gold price, and the like. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those anticipated,
estimated or projected. The Company cautions against placing undue
reliance on forward-looking statements all of which speak only as of
the date made.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) During the quarter ended July 31, 1998, the Company
issued a total of 400,000 shares of common stock without registration.
A total of 300,000 of such shares were sold for cash, including
250,000 shares sold to Ausdrill and 50,000 shares sold to another
accredited investor pursuant to the private offering authorized by the
Board of Directors, as described above. A total of 100,000 shares
were issued as additional consideration to the holder of an outstanding
convertible note. The note was due June 1, 1998, but was not paid
because of lack of funds.
The Company received cash proceeds of $150,000 from the
sales of its unregistered securities during the quarter, and the funds
were used in part to pay current and past due expenses and in part to
pay expenses associated with the in-fill drilling program at the
Bushmaster project.
All of the unregistered shares issued during the quarter were
issued in reliance upon exemptions from registration provided by
Section 3(b) and/or Section 4(2) of the Securities Act of 1933,
Regulation D and Rule 505 thereunder.
ITEM 6 (a) - Exhibit 27: Financial Data Schedule
(b) - There have been no reports on Form 8-K for the quarter ending
July 31, 1998.
<PAGE>
Signatures
In accordance with the requirements of the Exchange Act, the regis-
trant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Heritage Mines, Ltd.
(Registrant)
By:/s/ ____________________________________
Gregory B. Sparks
President, CEO and Director
Date: September ___, 1998
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