<PAGE> 1
Form 10-QSB
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
COMMISSION FILE NUMBER 33-0773-A
FREMONT GOLD CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 65-0110447
- ---------------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2000 - 777 Hornby Street
Vancouver, British Columbia, Canada V6Z 1S4
- ------------------------------------------ ---------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (604) 682-4606
-------------------------------------------------------------------
(Former name and former address, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
There were 6,060,000 shares of the Company's Common Stock, $.001 par value per
share, issued and outstanding at May 15, 1997 .
<PAGE> 2
FREMONT GOLD CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION Page No.
--------------------- --------
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheet - March 31, 1997 4
Consolidated Statements of Operations --
Three Months ended March 31, 1997 and Three Months
ended March 31, 1996 5
Consolidated Statements of Cash Flows --
Three Months ended March 31, 1997 and Three Months
ended March 31 1996 6
Notes to Consolidated Financial Statements 7
Item 2. Management Discussion and Analysis of Results of
Operations and Financial Condition 18
PART II OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to Vote of Security-Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
</TABLE>
-2-
<PAGE> 3
FREMONT GOLD CORPORATION
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
-3-
<PAGE> 4
FREMONT GOLD CORPORATION
CONSOLIDATED BALANCE SHEETS
(Expressed in U.S. Dollars)
Unaudited
<TABLE>
<CAPTION>
--------------
March 31, 1997
--------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash $ 235,595
Accounts receivable 75,262
Due from related parties (note 3) 25,752
Prepaid expenses 7,831
-----------
344,440
NON-CURRENT ASSETS:
Mineral properties (note 4) 822,966
Property and equipment, net (note 5) 124,002
-----------
TOTAL ASSETS $ 1,291,408
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 278,446
Due to related parties (note 6) 47,315
Promissory note payable (note 7) 11,205
Series A Convertible Notes (note 8) 1,800,000
Current portion of capital lease obligations (note 12) 11,884
-----------
2,148,850
NON-CURRENT LIABILITIES:
Capital lease obligations, less current portion (note 12) 15,696
MINORITY INTEREST 2,500
STOCKHOLDERS' DEFICIT
Common stock (note 9) 25,060
$.001 par value; 20,000,000 authorized;
6,060,000 issued and outstanding at March 31,1997
Additional paid-in capital 1,040,226
Unearned compensation (144,350)
Accumulated deficit (1,796,574)
-----------
Total Stockholders' Deficit (875,638)
Commitments and Contingencies (notes 4, 8, 12, and 13)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,291,408
===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-4-
<PAGE> 5
FREMONT GOLD CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in U.S. Dollars)
Unaudited
<TABLE>
<CAPTION>
For the Three Months Ended
------------------------------------
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Interest income $ 5,942 $ --
GENERAL AND
ADMINISTRATIVE EXPENSES:
Compensation expense from stock option grants 25,431 --
Salaries and consulting 154,492 --
Depreciation 4,025 --
Foreign exchange 339 --
Legal and accounting 61,344 2,758
Rent and office expenses 56,021 321
Investor services 10,302 750
Travel and public relations 62,585 --
----------- -----------
368,597 3,829
Mineral property exploration 450,239 --
Less capitalized exploration costs 426,727 --
----------- -----------
23,512 --
Loss from operations 392,109 3.829
Interest expense 47,277 --
----------- -----------
Net loss $ 439,386 $ 3,829
=========== ===========
Weighted average number
of shares outstanding 6,060,000 1,000,000
=========== ===========
Loss per common share $ (0.07) $ (0.004)
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-5-
<PAGE> 6
FREMONT GOLD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in U.S. Dollars)
Unaudited
<TABLE>
<CAPTION>
For the Three Months Ended
---------------------------------
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (439,386) $(3,829)
Adjustments to reconcile net loss to net cash used in operating
activities:
Compensation expense from stock option grants 25,431 --
Depreciation 4,025 --
Increase (decrease) in
Accounts receivable (46,433) --
Due from related parties (12,713) --
Prepaid expenses -- --
Accounts payable and accrued liabilities 149,608 --
----------- -------
Net cash used in operating activities (319,468) (3,829)
CASH FLOWS FROM FINANCING ACTIVITIES:
Due to related parties (9,539) --
Lease payments (8,797) --
Series A Convertible Notes 30,000 --
Promissory Note (11,395) 3,690
Increase in paid in capital -- 1,310
----------- -------
Net cash flow from financing activities 269 5,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in mineral properties (426,727) --
Investment in property and equipment (33,001) --
----------- -------
Net cash used in investing activities (459,728) --
Net increase (decrease) in cash (778,927) 1,171
Cash and cash equivalents, beginning of
period 1,014,522 1,035
----------- -------
Cash and cash equivalents, end of period $ 235,595 $ 2,206
=========== =======
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-6-
<PAGE> 7
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Three Months Ended March 31, 1997
- --------------------------------------------------------------------------------
1. NATURE OF OPERATIONS
The Company is a Delaware corporation and its principal business activity is the
acquisition, exploration and development of mineral properties, primarily gold
and copper properties located in Latin America.
During 1996, the Company commenced a program of exploration of certain mineral
properties, and as at March 31, 1997 had not established the existence of
economically recoverable mineral reserves. Continuing operations of the Company
and the recoverability of amounts shown for mineral properties are dependent
upon the discovery of economically recoverable reserves, the ability of the
Company to obtain financing to complete exploration and development and future
profitable operations or proceeds from the disposition thereof.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of presentation
These consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States.
The financial statements have been prepared assuming the Company will continue
as a going concern. Certain factors, discussed below, raise substantial doubt
about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
The Company has a substantial working capital deficit at March 31, 1997 due to
current debt maturities, and does not have sufficient funds to meet the
exploration objectives as presently planned. Management recognizes that the
Company must generate additional resources to enable it to continue operations.
The Company is actively pursuing the sale of equity securities with funds raised
being made available to the Company. Management expects these pursuits will
result in additional resources to the Company, however, no assurance can be
given that the Company will be successful in raising additional capital.
Further, there can be no assurance, assuming the Company successfully raises
additional funds, that the Company will achieve profitability or positive cash
flows in the future.
An election by Series A Note holders (see note 8, Series A Convertible Notes)
not to convert such debt to equity would result in the Company being required to
repay the principal amount of the unconverted Series A Note, together with
accrued and unpaid interest, on June 30, 1997. The Company has been utilizing
the proceeds of the Series A Notes in connection with its business operations.
Therefore, if any of the Series A Note holders elect not to convert, the Company
may be required to repay principal and interest to those Series A Note holders
who elect not to convert. There can be no assurance that the Company will have
sufficient funds to repay those Series A Note holders who elect not to convert.
The Company may be required to seek outside sources of capital to meet its
financial obligations under the Series A Notes if a sufficient number of Series
A Note holders elect not to convert. The failure to procure such financing on
acceptable terms could have a material adverse effect on the Company's business,
financial condition and results of operations.
If the Company is unable to obtain adequate additional financing, management
will be required to curtail the Company's exploration and mineral property
acquisition programs.
-7-
<PAGE> 8
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Three Months Ended March 31, 1997
- --------------------------------------------------------------------------------
(b) Use of 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.
(c) Principles of consolidation
The consolidated statements include the accounts of the Company and its 100%
owned subsidiary, Flagship Holding Ltd. ("FHL"), and 99% owned subsidiary Minera
Fremont Gold Chile S.A. ("MFG"). All significant intercompany transactions and
balances have been eliminated on consolidation.
(d) Accounting treatment of Flagship Holding Ltd. acquisition
Pursuant to a Share Purchase Agreement dated July 31, 1996, with an effective
date of July 1, 1996, the Company acquired 100% of the issued and outstanding
shares of FHL it did not previously own. The Company completed this acquisition
in consideration of the exchange of 3,560,000 shares of its Common Stock.
The acquisition of FHL by the Company has been accounted for at historical cost
in a manner similar to pooling of interest accounting.
(e) Cash and cash equivalents
Cash and cash equivalents consist of highly liquid investments that are readily
convertible to known amounts of cash and generally have original maturity values
of three months or less.
(f) Mineral properties
All mineral claim acquisition costs and exploration and development expenditures
in the pre production stage relating to mineral properties, net of any
recoveries, are capitalized. General exploration expenditures which do not
relate to specific resource properties are expensed in the period incurred.
The amounts shown as deferred mineral property costs represent net costs to date
and do not necessarily represent present or future values.
On an on-going basis, the Company evaluates each property based on results to
date to determine the nature of exploration work that is warranted in the
future. If there is little prospect of further work on a property being carried
out, the deferred costs related to that property are written down to the
estimated recoverable amount.
The deferred acquisition, exploration and development costs related to a
property from which there is production will be depleted on the
unit-of-production method based upon estimated proven and probable reserves.
-8-
<PAGE> 9
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Three Months Ended March 31, 1997
- --------------------------------------------------------------------------------
(g) Property and equipment
Amortization of office furniture and equipment, computer hardware and software,
leased assets and leasehold improvements is provided on a straight line basis
over a period of three years.
(h) Accounting for the impairment of long-lived assets
In 1996, the Company adopted Financial Accounting Standards Board 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").
The adoption of SFAS 121 had no effect on the Company's financial statements.
(i) Foreign currency translation
The Company and its subsidiaries use the U.S. Dollar as their functional
currency. Transactions recorded in Chilean pesos, Barbados pounds and Canadian
dollars are translated as follows:
(i) Monetary assets and liabilities at the rate prevailing at the
balance sheet date.
(ii) Non-monetary assets and liabilities at historic rates.
(iii) Income and expenses at the average rate in effect during the
period.
Exchange gains or losses are recorded in the consolidated statement of
operations.
(j) Accounting for stock based compensation
The Company uses the intrinsic value based method of accounting prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" in accounting for its stock-based incentive plans.
Under the intrinsic value based method, compensation cost is the excess, if any,
of the quoted market price of the stock at the grant date over the amount an
employee or director must pay to acquire the stock.
(k) Income taxes
The Company uses the asset and liability method of accounting for income taxes.
Under the asset and liability method, deferred income taxes are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred taxes of a change in tax rates is recognized in income in the period
that includes the enactment date.
(l) Loss per share
Loss per share is computed by dividing the loss by the weighted average number
of common shares outstanding during the period.
-9-
<PAGE> 10
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Three Months Ended March 31, 1997
- --------------------------------------------------------------------------------
3. DUE FROM RELATED PARTIES
Balance represents employee advances for expenditures made by employees on
behalf of the Company.
4. MINERAL PROPERTIES
Accumulated costs in respect to the Company's interest in mineral claims under
lease or option consist of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Acquisition Balance at Additions during Written off during Balance at
and Exploration Costs Dec. 31, 1996 the period the period Mar. 31, 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
RESGUARDO
Acquisition $ 88,101 $ - $ - $288,101
Exploration 83,138 333,283 - 416,421
- --------------------------------------------------------------------------------------------------------------
371,239 333,283 - 704,522
CENIZAS
Acquisition 25,000 - - 25,000
Exploration - 35,533 - 35,533
- --------------------------------------------------------------------------------------------------------------
25,000 35,533 - 60,533
SANTA ELOISA
Acquisition - 30,000 - 30,000
Exploration - 27,911 - 27,911
- --------------------------------------------------------------------------------------------------------------
- 57,911 - 57,911
- --------------------------------------------------------------------------------------------------------------
Total $396,239 $426,727 $- $822,966
==============================================================================================================
</TABLE>
(a) Resguardo Property
On July 17, 1996, the Company entered into a 99 year Lease Agreement on the
Resguardo Property. Lease payments are as follows: $75,000 upon execution of the
Lease Agreement; $60,000 payable on each of the lease's first and second
anniversary; and $80,000 payable on the lease's third anniversary. The Company
has the exclusive right to exploit, benefit, explore, develop and smelt minerals
from the 4,765 hectare (11,774 acre) property located on the Atacama Fault
System of northern Chile. The owners retain a net smelter return production
royalty, equal to 5% on gold and 1.5% on all other mineral production from the
property, and a minimum annual royalty payment of $300,000 is payable when the
property is in production. Subsequent to the third anniversary of the lease, the
Company must complete a feasibility study and obtain project financing to begin
production on or before the seventh anniversary of the lease. No payments to the
owners are required during this period. If production financing has not been
obtained during this period, and construction of the mine has not begun by the
seventh anniversary, the Company must pay advance royalty payments of $150,000
in first year of delay; $200,000 in the second year of delay; $250,000 in the
third year of delay; and 15% annual incremental increases for subsequent delays.
The first royalty payment may be credited to the future net smelter return
production royalty.
During 1996, the Company applied for exploration claims on an additional 12,000
hectares (29,652 acres) adjacent to the leased property.
-10-
<PAGE> 11
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Three Months Ended March 31, 1997
- --------------------------------------------------------------------------------
(b) Cenizas
The Company signed a Letter of Intent with RTZ Mining & Exploration Limited
("RTZ") on December 13, 1996 whereby the Company can earn an initial 51%
interest in the Cenizas Property mining concessions on 6,000 hectares (14,826
acres) located on the West Fissure Fault in northern Chile, by making cash
payments totaling $350,000 and completing at least $1,000,000 of exploration
work over three years. Payments during the first year total $50,000 with a first
year exploration commitment by the Company of $200,000. The Company will also
grant to RTZ options to purchase shares of its Common Stock as follows: by June
13, 1997 an option to purchase 150,000 shares of Common Stock at a price of
$1.50 per share, by December 13, 1997 an additional option to purchase 150,000
shares of Common Stock at a price of $2.00.
Upon completion of the required payments to RTZ and satisfaction of the
Company's exploration commitments, the Company will be entitled to a 51%
interest in the Cenizas Property mining concessions. At that time, the project
will convert into a joint venture between the Company and RTZ with the Company
serving as manager of the joint venture. It is presently contemplated that at
such time, a new entity (the exact form of which has not been specified) will be
formed to hold title to the mining concessions with the Company initially owning
51% of the entity. (If either the Company or RTZ chooses not to contribute
pro-rata, their interest can be diluted to a 2% Net Smelter Royalty with a
maximum value of $3,000,000.) Within 60 days of the Company earning its 51%
interest in the Cenizas Property mining concessions, RTZ has an option to obtain
a 51% interest in the mining concessions by committing to fund and complete a
bankable feasibility study within a 30 month period.
During 1996 and first quarter of 1997, the Company applied for exploration
claims on an additional 7,500 hectares (18,533 acres) adjacent to the optioned
property.
(c) Santa Eloisa
On January 22, 1997, the Company entered into an agreement ("Santa Eloisa
Agreement") with certain mining concession owners ("Santa Eloisa Owners").
Pursuant to the Santa Eloisa Agreement the Santa Eloisa Owners will cause a new
Chilean corporation to be formed, Minera Santa Eloisa S.A. ("MSE") and 100% of
the mining concessions covering approximately 4,700 hectares in the Maricunga
Gold Mining District of northern Chile to be transferred to MSE in consideration
of 500 series A shares and 1,500 series B shares representing 100% of MSE. The
Company, pursuant to the Santa Eloisa Agreement may: (i) purchase 500 series A
shares from the Santa Eloisa Owners upon payment to the Santa Eloisa Owners of
$500,000 ("Purchase Option"); $30,000 paid on January 22, 1997, $135,000 payable
on May 31, 1997, $135,000 payable on November 30, 1997, $100,000 payable on
March 31, 1998 and $100,000 payable ($100,000 in cash and 23,333 issuable shares
of the Company's Common Stock) on March 31, 1999, and (ii) purchase from MSE
1,000 series A shares in consideration of funding a $1,000,000 exploration work
program ("Exploration Commitment") on or before March 31, 1999. Upon the
Company's exercise of its Purchase Option and funding its Exploration Commitment
the Company will own 50% of the share capital of MSE in the form of series A
Shares, the Santa Eloisa Owners will own 50% of the share capital of MSE in the
form of series B shares. The series B shares cannot be diluted below 25% of the
total share capital of MSE.
The Company will manage the business affairs and daily operations of MSE and
will appoint its directors in proportion to its relative ownership percentage of
MSE.
-11-
<PAGE> 12
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Three Months Ended March 31, 1997
- --------------------------------------------------------------------------------
5. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Cost Accumulated Net
Depreciation
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Office furniture and equipment $49,191 $ 4,688 $ 44,503
Computer hardware and software 24,021 2,997 21,024
Vehicle 20,633 -- 20,633
Field Equipment 203 -- 203
Leased assets 38,407 2,633 35,774
Leasehold improvements 2,165 300 1,863
- ------------------------------------------------------------------------------------------
Total $34,620 $10,618 $124,002
==========================================================================================
</TABLE>
6. DUE TO RELATED PARTIES
On April 11, 1996, Minera Fremont Gold Chile S.A. borrowed $20,493 from Roberto
Partarrieu, an employee of the Company. The loan is non-interest bearing and is
repayable upon demand. At March 31, 1997, $20,493 was outstanding.
On June 14, 1996, FHL borrowed $60,847 from Edward M. Topham, an officer and
director of the Company, pursuant to a Loan Agreement. This loan is repayable
upon demand with interest accruing at 10%. Payments totaling $37,772 ($36,000 of
principal and $1,772 in interest) have been made on the loan. At March 31, 1997,
the principal outstanding was $24,848 and $1,974 of interest was accrued on the
loan.
7. PROMISSORY NOTE
On October 31, 1996, the Company entered into a Promissory Note agreement with
Laminco Resources Inc. ("Laminco") for the purchase of office and computer
equipment. The note requires that monthly payments of $2,256 be made on the
first day of each month commencing January 1, 1997 until full repayment has
occurred. If payments are made when due, no interest on the principal is
applied. If payments are not made when due, an interest charge of 1% compounded
monthly applies on the aggregate unpaid principal balance plus accrued interest.
The Company has pledged the assets purchased as additional collateral and has
agreed not to dispose of the assets until the principal has been paid.
8. SERIES A CONVERTIBLE NOTES
On August 28, 1996, the Company commenced an offering of $1,800,000 principal
amount of unsecured 10.5% Series A Convertible Notes ("Series A Notes"). Each
Series A Note is convertible, at the option of the holder into Equity Units at
any time after the issue date and prior to March 1, 1997 (the "Maturity Date"),
at the rate of $0.50 per Equity Unit.
Each Equity Unit is comprised of one share of the Company's Common Stock, par
value $0.001 per share, and one Redeemable Common Stock Purchase Warrant
("Warrant").
-12-
<PAGE> 13
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Three Months Ended March 31, 1997
- --------------------------------------------------------------------------------
Each Warrant is exercisable until April 15, 1997 to purchase one share of Common
Stock at the greater of $1.50 or 75% of the ten day average closing prices, as
quoted on the OTC Bulletin Board, immediately preceding the notice of exercise.
The Warrants issued in connection with the conversion of the Series A Notes as a
component of the Equity Unit will be redeemable by the Company upon conversion
of the notes, and upon 15 days notice to the Warrant holder, at a redemption
price of $0.10 per Warrant.
The holders of the Series A Notes, Warrants or Common Stock issued to holders
without an effective Registration Statement under the Securities Act of 1933, as
amended, ("Act") shall have the right, at any time, to join with the Company to
register the Common Stock and the Common Stock underlying the Series A Notes and
Warrants in any Registration Statement under the Act filed by the Company with
the Securities and Exchange Commission. The Company filed a Registration
Statement on Form SB-2 with the Securities and Exchange Commission on February
12, 1997. The Registration Statement includes the Common Stock underlying the
Series A Notes and Warrants.
On August 26, 1996, Roberto L. Partarrieu, general manager of MFG, purchased
Series A Notes in the principal amount of $30,000. On September 3, 1996, HRG, a
private investment partnership, purchased Series A Notes in the principal amount
of $25,000. Michael J. Hopley, president, chief executive and director of the
Company beneficially owns one third of HRG.
Each purchaser of the Series A Notes, as a condition precedent to his, her or
its conversion into Equity Units, must enter into a Voluntary Stock Pooling
Agreement ("Pooling Agreement"). Under the terms of the Pooling Agreement each
recipient of Common Stock pursuant to conversion of the Series A Notes will
severally agree with the Company, the Trustee (as defined in the Pooling
Agreement) and each with the other, that they will deliver or cause to be
delivered to the Trustee certificates representing their respective shares of
Common Stock received in the conversion. The shares of Common Stock issuable
upon exercise of the Warrants will not be subject to the Pooling Agreement.
Pursuant to the Pooling Agreement the Trustee shall hold all certificates
subject to release, on a pro-rata basis, as follows:
PRO-RATA SHARES OF COMMON STOCK RELEASE DATE
25% of Common Stock purchased April, 1, 1997
25% of Common Stock purchased July 1, 1997
25% of Common Stock purchased October 1, 1997
the balance of Common Stock purchased January 1, 1998
On February 27, 1997, the Company made amendments to the terms and conditions of
the Series A Notes. The Company extended the expiry date of the Warrant
component of the Units from April 15, 1997 to September 30, 1997. The Company
requested that note holders extend the Maturity Date of the notes from March 1,
1997 to June 30, 1997.
As at April 30, 1997, 88% of the Series A Note holders representing 92% of the
balance of the notes payable had signed and delivered to the Company, Maturity
Date Extension Agreements. While management believes that the remaining note
holders will sign and return their Agreements to the Company, the Company is in
default on the remaining Series A Notes. In the event that the remaining Series
A Note holders do not agree to the maturity date extension, these Series A Note
holders may pursue remedies under the Note, in accordance with certain terms and
conditions including earning default interest at the rate of 16% per annum. The
principal amount of Series A Notes in default is $141,000.
The interest rate of 10.5% will be paid upon the notes until they are converted.
-13-
<PAGE> 14
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Three Months Ended March 31, 1997
- --------------------------------------------------------------------------------
Upon conversion of the note, the first 25% release from the Voluntary Pooling
Agreement, originally scheduled for April 1, 1997, will be immediately released.
The balance of the releases will remain unchanged at July 1, 1997, October 1,
1997 and January 1, 1998.
9. SHARE CAPITAL
On April 15, 1996, the Board of Directors of the Company and holders of a
majority of the outstanding Common Stock of the Company authorized the Company,
by written consent, to take a series of actions related to its authorized and
outstanding Common Stock. These actions included a one-for-twenty (1-for-20)
reverse stock split of the Company's Common Stock, pursuant to which each twenty
(20) shares of the Company's Common Stock outstanding immediately prior to April
30, 1996 was converted into one (1) share of the Company's Common Stock.
In connection with the reverse split the Company maintained the par value of its
Common Stock at $0.001 par value per share, and the total number of shares of
Common Stock authorized to be issued by the Company remained unchanged at
20,000,000 shares. The number of issued and outstanding shares of the Company's
Common Stock after the reverse split was 1,000,000 shares. All references to
shares of Common Stock have been retroactively adjusted to reflect this reverse
split.
In May 1996, the Company's Board of Directors approved a private placement of
1,000,000 shares of Common Stock at an offering price of $0.20 aggregating
$200,000 to the Company. This private placement was closed on July 30, 1996.
On July 31, 1996, the Board of Directors of the Company and holders of a
majority of the outstanding shares of the common stock of the Company,
authorized the Company, by written consent, to acquired 100% of FHL stock not
previously owned by the Company. The Company completed this acquisition in
consideration for the exchange of 3,560,000 shares of its Common Stock. Michael
J. Hopley, a director, president and chief executive officer of the Company,
David Shaw, a director of the Company and Edward M. Topham, chief financial
officer of the Company, received 418,000, 372,000, and 381,000 shares,
respectively, of the Company's Common Stock in the exchange.
On August 1, 1996, the Company completed a private placement of 500,000 shares
of its Common Stock to Laminco in consideration of $140,000.
WARRANTS
On June 4, 1996 and June 20, 1996, Laminco, then an affiliate of the Company,
advanced loans to the Company. In consideration of these loans the Company
granted Laminco warrants to purchase 400,000 shares of the Company's Common
Stock at a purchase price of $1.00 for a period of two (2) years. Fair value of
the warrants was considered nominal by the Company. In addition, the Company
granted Laminco certain rights to participate in all future financing completed
by the Company on the same terms offered third parties. Prior to year end the
balance of the loans was repaid.
STOCK OPTIONS
The Company's stockholders have adopted the 1996 Incentive Stock Plan (the
"Plan") which allows the Board of Directors to provide the Company's key
employees with incentive compensation commensurate with their positions and
responsibilities. The Plan permits the grant of incentive equity awards covering
up to 1,000,000 shares of Common Stock and will be administered by the
Compensation Committee of the Board of Directors (the "Committee"), two or more
-14-
<PAGE> 15
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Three Months Ended March 31, 1997
- --------------------------------------------------------------------------------
members of which will be independent directors. The Plan provides for the grant
of non-qualified stock options and incentive stock options (collectively, the
"Incentive Awards"). Key employees of the Company and its subsidiaries,
including officers who are not also members of the Board of Directors, will be
eligible to participate in the Plan.
The Board of Directors may at any time amend the Plan in any respect; provided,
that, without the approval of the Company's shareholders, no amendment may (i)
increase the number of shares of Common Stock that may be issued under the Plan,
(ii) materially increase the benefits accruing to individuals holding Incentive
Awards, or (iii) materially modify the requirements as to eligibility for
participation in the Plan.
Changes in stock options for the three months ended March 31, 1997 are shown in
the following table:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Exercise Price Weighted Avg
Share Options Per Share Exercise Price
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at Dec. 31, 1996 780,000 $1.17 to 1.28 $ 1.23
Granted during the period 170,000 $ 1.17 $ 1.17
- --------------------------------------------------------------------------------------------------------------
Outstanding at Mar. 31, 1997 950,000 $1.17 to 1.28 $ 1.22
Exercisable at Mar. 31, 1997 207,500 $1.17 to 1.28 $ 1.23
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Expiry dates for options granted range from September 27, 2001 to January 10,
2002.
The Company applies APB Opinion No. 25 and related interpretations in accounting
for its option plan. Accordingly, compensation costs based on the difference
between the quoted market value of the stock price at the grant date and the
option exercise price has been recognized and will be amortized over the vesting
period. Had compensation cost for the Company's stock option plan been
determined based on the fair value at the grant dates, consistent with the
method of Statement of Financial Accounting Standards No. 123, "Accounting for
Stock Based Compensation", the Company's net loss and loss per share would have
been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Net loss 1996
---------
<S> <C>
As reported $ 439,386
Pro forma $ 514,549
Net loss per common share
As reported $ 0.07
Pro forma $ 0.08
</TABLE>
The estimated weighted average fair value of options granted during the quarter
was $0.66 assuming a risk free rate of 7%, an expected volatility of 42% and a
weighted average expected life of 2 years. The estimate was made using the
Black- Scholes Option Pricing Model. The weighted average remaining contractual
life of options outstanding at March 31, 1997 was 4.6 years.
-15-
<PAGE> 16
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Three Months Ended March 31, 1997
- --------------------------------------------------------------------------------
10. INCOME TAXES
At December 31, 1996, the Company had net operating loss carry forwards for
federal income tax purposes of approximately $862,122. Operating losses of
$405,771 accumulated to December 31, 1995 are no longer available for carry
forward due to the change in the nature of the Company's business operations
that occurred in 1996.
No deferred tax benefit has been recorded due to the uncertainty of the Company
realizing these benefits through profitable operations in the future.
11. SEGMENTED INFORMATION
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------------------------------------------
Loss for the Identifiable Loss for the Identifiable
Quarter Assets Quarter Assets
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
United States $ -- $ -- $3,829 $2,206
Canada 327,216 326,121 -- --
Barbados 968 1,969 -- --
Chile 111,202 963,318 -- --
- ---------------------------------------------------------------------------------------------------
Consolidated $439,386 $1,291,408 $3,829 $2,206
===================================================================================================
</TABLE>
12. COMMITMENTS AND CONTINGENCIES
The Company is committed under an operating lease to pay for office space in
Vancouver, British Columbia, Canada. The lease is for a term of five years
commencing on the 1st day of August, 1996 and ending on the 30th day of July
2001. The minimum lease payments for the next five years are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
<S> <C>
1997 $ 20,174
1998 20,174
1999 20.174
2000 20,174
2001 11,768
--------
Total $ 92,464
========
</TABLE>
-16-
<PAGE> 17
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Three Months Ended March 31, 1997
- --------------------------------------------------------------------------------
The Company leases vehicles under agreements which are classified as capital
leases. Leased capital assets included in Property and equipment at March 31,
1997 are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
<S> <C>
Leased Vehicles $38,407
Less: Accumulated Depreciation 2,633
- --------------------------------------------------------------------
Total $35,774
====================================================================
</TABLE>
Following is a summary of future minimum payments under capitalized leases that
have initial or remaining noncancelable lease terms in excess of one year at
March 31, 1997:
<TABLE>
- -------------------------------------------------------------------------------------
<S> <C>
Year ending December 31,
1997 $14,676
1998 16,555
- -------------------------------------------------------------------------------------
Total minimum lease payments 31,231
Less: interest 3,651
- -------------------------------------------------------------------------------------
Present value of minimum lease payments 27,580
Current portion 11,884
Long term obligation $15,696
=====================================================================================
</TABLE>
13. SUBSEQUENT EVENTS
(a) On April 1, 1997, the Company borrowed $650,000 from an unaffiliated lender
("Lender") pursuant to a Promissory Note. The Promissory Note provided for an
interest rate of 12% per annum and a maturity date of July 31, 1997, at which
point, principal and accrued and unpaid interest shall be paid. The Promissory
Note is secured by a pledge agreement ("Pledge Agreement"). Under the terms of
the Pledge Agreement, Michael J. Hopley, a director, president and chief
executive officer of the Company, Edward M. Topham, a director and chief
financial officer of the Company and David Shaw, a director of the Company,
granted the Lender a security interest in 1,088,412 shares of Common Stock of
the Company. As additional consideration, the Company issued the Lender a
warrant to purchase 650,000 shares of the Company's Common Stock for a period of
two years at a price of $1.50 per share. In connection with this transaction the
Company granted an unaffiliated individual a loan origination fee consisting of
a warrant to purchase 85,000 shares of the Company's Common Stock for a period
of two years at a price of $1.50 per share. In consideration of providing the
security interest to facilitate this loan, the Company has agreed to issue
Messieurs Hopley, Topham and Shaw an aggregate of 75,000 shares of the Company's
Common Stock.
-17-
<PAGE> 18
FREMONT GOLD CORPORATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION, RESULTS
OF OPERATIONS AND PLAN OF OPERATION
- --------------------------------------------------------------------------------
The analysis of Fremont Gold Corporation (the "Company") financial
condition, liquidity and capital resources, and results of operations should be
viewed in conjunction with the accompanying financial statements, including the
notes thereto.
FINANCIAL CONDITION
At March 31, 1997, the Company had current assets of $344,440, as
compared to current assets of $1,094,221 at December 31, 1996. The decrease at
March 31, 1997, reflects a decrease in cash balances of $778,927 and an increase
in accounts receivable of $29,146. At March 31, 1997, the Company had current
liabilities of $2,148,850, as compared to current liabilities of $2,033,124 at
December 31, 1996. The increase at March 31, 1997 is comprised of a $149,609
increase in accounts payable and accrued liabilities and a decrease in amount
due to related parties, the promissory note payable and the current portion of
the capital lease obligation of $9,539, $11,395, and $12,949 respectively.
At March 31, 1997 the Company has a net worth of ($875,638), as
compared to a net worth of ($461,682) at December 31, 1996. The decrease in net
worth was a result of on going costs associated with the exploration,
administration and management of the Company's mineral properties.
RESULTS OF OPERATIONS
The Company had a loss during the first quarter ended March 31, 1997,
of $439,386 or $0.07 per share. For the first quarter ended March 31, 1996 the
Company's loss was $3,829 or $0.004 per share.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 1997, the Company's working
capital deficiency increased to $1,804,410. The increase is primarily attributed
to the use of cash of $778,927 in the Company's exploration programs.
The Company filed a Registration Statement on Form SB with the
Securities and Exchange Commission on February 12, 1997. Upon approval of the
Company's Registration Statement, it is anticipated the all of the Series A
Notes will be converted in to shares of its Common Stock and Common Stock
Purchase Warrants. The Company further exercised its right to extend the due
date of the Series A Notes until March 1, 1997 and subsequently received
extensions on $1,659,000 principle amount of the Series A Notes until June 30,
1997. If all of the Warrants underlying the Equity Units received by the Series
A Note holders upon conversion are exercised, the Company will receive minimum
net proceeds of $5,400,000.
PLAN OF OPERATION
The Company is, and plans to continue to be, engaged in the
acquisition, exploration and, if warranted, development of mineral properties,
primarily gold and copper properties located in Latin America. Currently, the
Company is only involved in the exploration for minerals and does not have an
interest in any operating mines. The Company's near term operational plan is to
complete exploration on its three principal mineral property interests and to
pursue the identification and acquisition of additional mineral properties. The
Company has implemented an aggressive plan to assess new opportunities for the
acquisition of additional mineral properties with an economic potential.
-18-
<PAGE> 19
During 1997, the Company will be required to pay $405,000 in lease and
purchase option payments in connection with its Resguardo, Cenizas and Santa
Eloisa properties. In addition, the Company is required to expend $200,000,
$300,000 and $500,000 in conducting exploration on its Cenizas Property during
1997, 1998 and 1999, respectively, and $1,000,000 in conducting exploration on
its Santa Eloisa Property before April 30, 1999.
The Company also intends to expend significant additional funds on i)
exploration in excess of contractual commitments, ii) identification and
acquisition of additional mineral properties and iii) general and administrative
costs associated with the implementation of its operational plan. The Company
has the ability to exercise control over the amount and timing of a significant
portion of these additional costs.
The Company has experienced operating losses since inception, resulting
in an accumulated deficit position. These operating losses are a result of the
Company's i) expansion of its administrative staff and technical staff to fully
support the Company's exploration and property acquisition activities, ii)
exploration expenditures on the Company's existing properties, and iii) costs
associated with the Company's mineral property acquisition program. The
Company's financial position and operating results raise substantial doubt about
its ability to continue as a going concern. Management's plans in regard to
these matters are discussed below.
It is anticipated that the proceeds from the Series A Notes and the
April 1, 1997 Promissory Note will satisfy the Company's cash requirements until
July 31, 1997. The Company may extend this date through reducing its current
exploration budget and acquisition activities. To the extent the additional
financial resources discussed below are not available to the Company, the
Company may be required to substantially reduce or eliminate its exploration and
or acquisition activities.
The Company's current operational plan relies upon the full conversion
of all Series A Notes. The Company has been utilizing the proceeds of the Series
A Notes in connection with its business operations. Therefore, if any of the
Series A Note holders elect not to convert, the Company may be required to use
any or all of the remaining proceeds from the offering of the Series A Notes to
repay principal and interest to those Series A Note Holders who elect not to
convert. There can be no assurance that the Company will have sufficient
remaining proceeds to repay those Series A Note holders who elect not to
convert. The Company may be required to seek outside sources of capital to meet
its financial obligations under the Series A Notes if a sufficient number of
Series A Note holders elect not to convert. In addition, to maintain the
Company's current level of exploration and acquisition activities, the Company
will need a significant portion of the Warrants to be exercised during 1997. The
Company currently anticipates that it will sell additional securities at a price
sufficient to raise approximately $2 million to $4 million, either pursuant to
registration or an exemption from registration under the Act within the next 12
months, however, there can be no assurance that the Company will be successful
in completing such sales. If the Company is successful in obtaining proceeds
from a significant number of Warrant exercises and it is successful in selling
additional securities, the Company likely will expand its property acquisition
program and accelerate exploration work on its current properties.
During the next 12 months the Company will focus its human and
financial resources on i) exploration of its existing properties, ii)
identification and acquisition of additional mineral properties and iii)
exploration of mineral properties subsequently acquired. The Company does not
anticipate any significant purchases or sales of plants or equipment during the
next twelve months.
Currently, the Company has 14 full time employees. The Company also has
two full time and several part time geological consultants. The Company
anticipates hiring one additional full time employee during the first half of
1997. To the extent the Company is successful in acquiring additional mineral
properties, it may hire one or more employees or consultants on a full time
basis in the technical field.
-19-
<PAGE> 20
FREMONT GOLD CORPORATION
PART II - OTHER INFORMATION
Item 1 - Legal Proceeding
No legal proceedings are currently pending or to, the
knowledge of management, threatened against the Company.
Item 2 - Changes In Securities
Not applicable
Item 3 - Defaults Upon Senior Securities
On February 27, 1997, the Company made amendments to the terms
and conditions of the Series A Notes. The Company extended the
expiry date of the Warrant component of the Units from April
15, 1997 to September 30, 1997. The Company requested that
note holders extend the Maturity Date of the notes from March
1, 1997 to June 30, 1997.
As at May 16, 1997, 88% of the Series A Note holders
representing 92% of the balance of the notes payable had
signed and delivered to the Company, Maturity Date Extension
Agreements. While management believes that the remaining note
holders will sign and return their Agreements to the Company,
the Company is in default on the remaining Series A Notes. In
the event that the remaining Series A Note holders do not
agree to the maturity date extension, these Series A Note
holders may pursue remedies under the Note, in accordance with
certain terms and conditions including earning default
interest at the rate of 16% per annum.
The amount of Series A Notes in default as at May 20, 1997 is
$150,619 which includes $141,000 of principle and $9,619 of
interest.
Item 4 - Submission Of Matters To A Vote Of Security-Holders
Not applicable
Item 5 - Other Information
Not applicable
-20-
<PAGE> 21
Item 6 - Exhibits And Reports On Form 8-K
a) Exhibit table:
<TABLE>
<CAPTION>
Exhibit Number Description of Exhibit Reference
- ----------------------------------------------------------------------------------------------
<S> <C>
4.4 Form of Maturity Date Extension Agreement between the (1)
Company and 10.5% Series A Convertible Note Holders
4.5.1 $650,000 Promissory Note, dated April 1, 1997 issued by (1)
Company in favor of International Freedom
4.5.2 Warrant to purchase 650,000 shares of Common Stock, dated (1)
April 1, 1997, issued to International Freedom
10.2 Basis of Agreement between Minera Fremont Gold Chile, S.A. (2)
and Alejandro Moreno P. and Others, dated January 22, 1997
(Santa Eloisa Property)
10.10 Pledge Agreement dated April 1, 1997 by and between Messers. (1)
Hopley, Shaw and Topham
</TABLE>
(1) Filed with Form 10KSB annual report, dated December 31, 1996.
(2) Filed with Registration Statement on Form SB-2, Reg. No. 333-21665,
filed February 12, 1997.
b) Reports on Form 8-K
1. CURRENT REPORT ON FORM 8K DATED FEBRUARY 12, 1997, (as
amended March 7, 1997), reporting a change in certifying
accountant.
2. CURRENT REPORT ON FORM 8K DATE MARCH 6, 1997, reporting
exploration results on the Company's Resguardo Property.
-21-
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Commission Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
FREMONT GOLD CORPORATION
DATE: MAY 16, 1997
By:/S/ Michael J. Hopley
----------------------------
Michael J. Hopley, President
-22-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 235,595
<SECURITIES> 0
<RECEIVABLES> 75,262
<ALLOWANCES> 0
<INVENTORY> 822,966
<CURRENT-ASSETS> 344,440
<PP&E> 134,620
<DEPRECIATION> 10,618
<TOTAL-ASSETS> 1,291,408
<CURRENT-LIABILITIES> 2,148,850
<BONDS> 0
0
0
<COMMON> 25,060
<OTHER-SE> (900,698)
<TOTAL-LIABILITY-AND-EQUITY> 1,291,408
<SALES> 0
<TOTAL-REVENUES> 5,942
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 392,109
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47,277
<INCOME-PRETAX> (439,386)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (439,386)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
