<PAGE> 1
Form 10-Q/A
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 September 30, 1996
COMMISSION FILE NUMBER 33-07773-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)
777 Hornby Street, Suite 2000
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 February 28, 1997.
<PAGE> 2
FREMONT GOLD CORPORATION
INDEX
PART I FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 1996 and December 31, 1995 4
Consolidated Statements of Operations
Nine Months ended September 30, 1996 and 1995 5
Consolidated Statements of Cash Flows
Nine Months ended September 30, 1996 and 1995 6
Notes to Financial Statements 7-15
SIGNATURES
2
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FREMONT GOLD CORPORATION
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
UNAUDITED
3
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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: March 10, 1997
By: /S/ Edward M. Topham
-----------------------
Edward M. Topham,
Chief Financial Officer
4
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FREMONT GOLD CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS
September 30, 1996 December 31, 1995
(unaudited)
---------------------- -----------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 752,233 $ 1,035
Accounts receivable 17,626 --
----------- ---------
769,859 1,035
Investment in mineral properties (Note 2) 413,594 --
Property, plant and equipment (net of depreciation) 10,725 --
TOTAL ASSETS $ 1,194,178 $ 1,035
=========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 38,171 $ --
Due to related parties (Note 3) 322,635 --
Loans payable -- 5,000
Notes payable (Note 4) 740,000 --
----------- ---------
Total Current Liabilities 1,100,806 5,000
Minority interest 2,500 0
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock $.001 par value; 20,000,000 authorized; 1,000,000 and 6,060,000
issued and outstanding at December 31, 1995 and September 30, 1996 respectively
(Note 6) 48,386 20,000
Additional paid-in capital 821,600 471,000
Accumulated deficit (779,114) (495,065)
----------- ---------
Total Stockholders' Equity (Deficiency) 90,872 (3,965)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY) $ 1,194,178 $ 1,035
=========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
5
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FREMONT GOLD CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1996 September 30, 1995
-------------------- --------------------
<S> <C> <C>
REVENUES:
Net sales $ -- $ --
Interest income 2,152 --
----------- -----------
2,152 --
GENERAL AND ADMINISTRATIVE EXPENSES
Consulting $ 157,760 $ --
Depreciation 308 --
Foreign exchange 8,267 --
Legal & accounting 45,344 --
Office 42,104 8,608
Shareholder information 6,325 --
Transfer agent & filing fees 3,034 --
Travel & public relations 23,059 --
----------- -----------
286,201 8,608
Net Loss $ (284,049) $ (8,608)
=========== ===========
Weighted average number of shares
outstanding 2,534,872 1,000,000
=========== ===========
Net loss per common share $ (.11) $ (.01)
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
6
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FREMONT GOLD CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1996 September 30, 1995
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss for the period $ (284,049) $(8,608)
Adjustments to reconcile net loss to net
cash used in operating activities:
Non-cash expenditure - depreciation 308 --
Increase (decrease) in
Accounts receivable (17,626) --
Accounts payable 38,171 --
Net cash flow from operating activities (263,196) (8,608)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issuance of shares for cash and
subscription deposits 340,000 --
Due to related parties 322,635 --
Loans payable (5,000) 5,000
Forgiveness of debt 12,000 --
Issuance of Notes (Note 4) 740,000 --
----------- -------
Net cash flow from financing activities 1,409,635 5,000
CASH FLOW FROM INVESTMENT
ACTIVITIES:
Investment in mineral properties (413,594) --
Acquisition of Flagship Holding Ltd. 26,886 --
Minority interest 2,500 --
Investment in property, plant &
equipment (11,033) --
----------- -------
Net cash flow from investing activities (395,241) --
Net increase (decrease) in cash 751,198 (3,608)
Cash and cash equivalents, beginning of
period 1,035 5,897
----------- -------
Cash and cash equivalents, end of period
$ 752,233 $ 2,289
=========== =======
</TABLE>
See accompanying notes to consolidated financial statements.
7
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FREMONT GOLD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Unaudited)
1. THE COMPANY AND BASIS OF PRESENTATION
History and Prior Activities
Fremont Gold Corporation (the "Company") was incorporated under the
laws of the State of Florida as Tri-Way Industries, Inc. on June 27, 1986, for
the purpose of seeking, investigating and acquiring business opportunities. The
Company did not engage in any meaningful operations until on or about November
22, 1989, at which time the Company acquired the Rothchild Group, Inc., at which
time it changed its name to The Rothchild Companies, Inc.
Until mid-1993, the Company, through its wholly-owned subsidiary, The
Rothchild Group, Inc., operated as a full service advertising agency engaged in
the advertising, marketing and public relations agency business. On October 20,
1993, however, the Company's subsidiary, The Rothchild Group, Inc., filed
bankruptcy protection under Chapter 7 of the U.S. Bankruptcy Code in the
Bankruptcy Court for the Southern District of Florida. Other than the business
operation of the Rothchild Group, Inc., the Company was not engaged in any other
meaningful commercial activities until the acquisition of control by Laminco
Resources, Inc., more fully discussed below.
On July 12, 1994, an investment group ("Investment Group") completed
the purchase of an aggregate of 315,598 shares of the Company's Common Stock
representing approximately 60% of the Company's issued and outstanding Common
Stock as of the date of the acquisition. In addition the Investment Group
provided sufficient funds in the form of loans to insure the Company's viability
and permit the Company to pursue a possible business combination, merger or
similar transaction. These loans were subsequently converted into 419,656 shares
of Common Stock of the Company on December 30, 1994.
On April 8, 1996, the Company completed the transfer of its state of
incorporation from Florida to Delaware. Accordingly, the Company is now a
Delaware corporation.
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 $.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 herein have been 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 $.20
aggregating $200,000 to the Company. This private placement was closed on July
30, 1996.
On June 4, 1996, Laminco Resources, Inc. ("Laminco") completed the
purchase of an aggregate of 600,000 of the Company's Common Stock representing
approximately 60% of the Company's issued and outstanding Common Stock as of the
date of the acquisition. These shares were purchased from the Investment Group.
In connection with the completion of the share acquisition by Laminco, the
Company's board of directors and management was
8
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reconstituted and the Company implemented a new business plan discussed
hereinafter under "Current Business Operations".
On June 4, 1996, and June 20, 1996, Laminco advanced the Company an
aggregate amount of $200,000 pursuant to a loan agreement. 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. 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. In August 1996 and October, 1996, payments of $100,000 and $100,000
respectively were made to Laminco.
On June 20, 1996, the Company advanced Flagship Holding Ltd. ("FHL"), a
Barbados corporation which owns 99% of Inversiones Mineras Ayl S.A. ("IMSA"), a
Chilean corporation which owns exploration mineral property interests, $125,000
pursuant to a loan agreement. In consideration of this loan the Company was
issued 125,000 shares of FHL's common stock.
On June 30, 1996, the Company entered into a Letter of Intent to
acquire Flagship Holding, Inc.
On July 25, 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 take a series of actions. These
actions included: i) The Change of Corporate Name to Fremont Gold Corporation to
better reflect the proposed business of the Company, ii) The Adoption of Amended
and Restated Certificate of Incorporation, iii) Adoption of Stock Option Plan to
allow the Company to attract and retain the best available personnel for
positions of responsibility within the Company and to provide additional
incentive to employees of the Company in order to promote the success of the
Company's business; and iv) Make Certain Management and Director Changes,
Expansion of the Board of Directors and Formation of Compensation and Audit
Committees.
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 of the exchange of 3,560,000 shares of its Common Stock pursuant
to exemptions from registration, of these 614,000 were issued by FHL under Rule
701 of the Securities Act and subsequently exchanged for the Company's shares,
and accordingly are "Restricted Shares", as the term is defined in Rule 144 and
2,946,000 shares were issued pursuant to Regulation S Rule 903 and transfer of
these securities is prohibited except in accordance with the provision of
Regulation S. 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.
The acquisition of FHL by the Company has been accounted for at historical cost
in a manner similar to pooling of interest accounting.
On July 30, 1996, the Company completed a private placement of 500,000
shares of its Common Stock to Laminco in consideration of $140,000.
On August 1, 1996, Mr. David Alexander resigned as a director,
treasurer and chief financial officer of the Company. Replacing Mr. Alexander,
Edward M. Topham was appointed vice president, treasurer and chief financial
officer of the Company.
On August 21, 1996, the Company commenced an offering of $1,800,000
principal amount of 10.5% Series A Senior Convertible Notes ("Series A Notes").
On September 30, 1996 the Company had accepted subscriptions totaling $740,000.
In December the Company completed the offering of Series A Notes and accepted
subscriptions aggregating $1,800,000. Each Series A Note is convertible, at the
option of the Holder into Equity Units at any time after the Issue Date prior to
the close on the Maturity Date at the rate of $.50 per Equity Unit. Each Equity
Unit is composed of one share of the Company's Common Stock, par value $.001 per
share, and one Redeemable Common Stock Purchase Warrant ("Warrant"). The Warrant
is exercisable 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 NASDAQ Bulletin
Board, immediately
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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 beginning January 1, 1997, upon 15 days notice to the
Warrant holder, at a redemption price of $.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 anticipates filing a
Registration Statement on Form S-B with the Securities and Exchange Commission
during the fourth quarter of 1996. Such Registration Statement will include the
Common Stock underlying the Series A Notes and Warrants. 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"). See Note 4 "Notes Payable" for a description of the Pooling
Agreement.
On August 23, 1996, the Company's indirectly owned Chilean operating
subsidiary changed its name from Inversiones Mineras Ayl S. A. to Minera Fremont
Gold Chile S.A.
Current Business Operations
The Company is engaged in the acquisition, exploration and development
of mineral properties, primarily gold and copper properties located in Latin
America.
Subsequent to its July 31, 1996, acquisition of FHL, the Company's
principal mineral property interests consists of three exploration properties
located along the historically productive Atacama Fault System in Chile. The
Resguardo Property, the Los Leones Property and the Remolino Property interests
are currently held through existing leases and purchase options. See Note 2
"Mineral Properties" for a description of the lease and purchase options. The
Company's mineral property interests are held by a Chilean operating company,
Minera Fremont Gold Chile S.A., a Chilean corporation, a 99% subsidiary of its
wholly owned subsidiary Flagship Holding Ltd., a Barbados corporation. Unless
otherwise indicated, the term "Company" means collectively Fremont Gold
Corporation, Flagship Holding, Ltd and Minera Fremont Gold Chile S.A.
The Company is continuously assessing new opportunities for the
acquisition of properties with the potential to be significant gold and copper
producers through its extensive knowledge and contacts in Latin America,
garnered from the over 100 years of collective exploration experience of the
Company's principals.
The Resguardo Property covers an area of over 4,000 hectares (10,000
acres) along 6 kilometers of the highly productive Atacama Fault System of
northern Chile. The property is on the same structural trend and about 10
kilometers south of the Mantoverde Mine operated by the Anglo-American company.
The property is accessible by road, approximately 100 km from Copiapo, a town
with a population of about 150,000. A series of surface mine workings and recent
surface sampling by the Company indicate extensive gold mineralization.
The Los Leones Property covers an area of approximately 6,000 hectares
(15,000 acres) along highly productive Atacama Fault System of central Chile.
Cambior Chile S.A. ("Cambior"), the previous owner, has conducted exploration
work on the property since April 1994, and has defined extensive areas of copper
and gold mineralization. The property is accessible by road, approximately 25 km
from Combarbala, a town with a population of about 30,000.
The Remolino Property covers an area of approximately 1,200 hectares
(3,000 acres) along the highly productive Atacama Fault System of central Chile.
Local small miners are currently active on the property exploiting a series of
high grade vein structures and Cambior, the previous owner, has conducted
exploration work on the property since mid-1994. This activity has shown the
potential for high grade polymetallic deposits and low grade, bulk tonnage
polymetallic deposits of copper-gold-silver. The property is accessible by road,
approximately 45 minutes from Illapel and 3 1/2 hours from the capital city of
Santiago.
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In August 1996, the Company commenced an exploration program consisting
of air photo interpretation, geological mapping, geophysical surveys, sampling,
trenching and limited core drill holes, primarily over obvious mineralized
areas, concentrating on identifying the controlling structures and the
interrelationships between the base and precious metals in the systems.
The Company has experienced operating losses since inception,
resulting in an accumulated deficit position. The Company's financial position
and operating results raise substantial doubt about its ability to continue as
a going concern.
The Company's registered office and headquarters is 777 Hornby Street,
Suite 2000, Vancouver, British Columbia V6Z 1S4, its telephone number is
604-682-4606. While its headquarters are in Vancouver, the Company has
established an office in Santiago, Chile from which its Chilean exploration
activities are directed.
Basis of Presentation
The balance sheet as of September 30, 1996, the statement of operations
for the nine months ended September 30, 1996 and September 30, 1995, and the
statement of changes in financial position for the nine months ended September
30, 1996, and September 30, 1995, have been prepared by the Company without
audit. In the opinion of management, all adjustments (which include only normal
recurring accruals) necessary to present fairly the financial position and
results of operations at September 30, 1996, and for all periods presented have
been made.
The unaudited financial statements are based on certain estimates and
are presently subject to year-end adjustments. The operations for the nine
months ended September 30, 1996 are not necessarily indicative of the results of
operations to be expected for the Company's fiscal year.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these financial
statements be read in conjunction with the Company's December 31, 1995 audited
financial statements and the June 30, 1996 audited financial statements of
Flagship Holding Ltd.
Accounting Treatment of Flagship Holding Ltd. Acquisition
Flagship Holding Ltd. ("FHL"), a Barbados corporation, was formed on
June 14, 1996 to facilitate registration pursuant to Chilean Decree Law 600 to
enable direct investment into Chile and acquire three mineral property interests
through investment in Minera Fremont Gold Chile S.A. ("MFG") formerly
Inversiones Mineras Ayl S.A., a Chilean corporation.
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 Company has treated the acquisition of FHL as if it were an
acquired business accounted for using the pooling of interests method.
Accordingly, the statements of operations and cash flows for the nine months
ended September 30, 1996 include the results of FHL from inception (June 14,
1996) to September 30, 1996. The effect of the acquisition of FHL on the number
of shares and capital accounts of the Company is shown in note 6.
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2. MINERAL PROPERTIES
a) Accumulated costs in respect to the Company's interest in
mineral claims under option consist of the following:
<TABLE>
<CAPTION>
Balance
Balance Expenditures Written off September 30,
Property January 1, 1996 during period during period 1996
- ------------------------- ------------------ ----------------- ------------- ---------------
<S> <C> <C> <C> <C>
Resguardo Property $ -- $372,538 $ -- $372,538
Remolino Property $ -- 15,000 -- 15,000
Los Leones Property -- 26,056 -- 26,056
$ -- $413,594 $ -- $413,594
======== ======== ======== ========
</TABLE>
Remolino Property
On June 17, 1996, the Company entered into a mining option. Under the
terms of the agreement, the Company shall pay a total consideration of $105,000
plus all costs to keep the property in good standing. The $105,000 is payable
$15,000 upon execution of the mining option; $15,000 in 6 months; $25,000 on the
first anniversary of the mining option; and $50,000 on the second anniversary of
the mining option. Additional option payments totaling $135,000 as follows:
$10,000 upon execution of the mining option; $20,000 on September 10, 1996;
$50,000 on December 10, 1996; and $55,000 on March 10, 1997. A net smelter
royalty of 3% must be paid to a maximum of $5 million if the property commences
commercial production.
Los Leones Property
On June 17, 1996, the Company entered into a mining option. Under the
terms of the agreement, the Company shall pay a total consideration of $100,000
plus all costs to keep the property in good standing. The $100,000 is payable
$10,000 upon execution of the mining option; $15,000 in 6 months; $25,000 on the
first anniversary of the mining option; and $50,000 on the second anniversary of
the mining option. A net smelter royalty of 3% must be paid to a maximum of $5
million if the property commences commercial production.
Resguardo Property
On July 17, 1996, the Company entered into a 99 year Lease Agreement on
a Chilean property known as 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 10,000 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 2% on all other mineral production
from the lease. 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, the Company must pay advance royalty payments that
increase annually from $150,000 per year to $250,000 per year, of which the
first payment may be credited to future net smelter return production royalty.
3. DUE TO RELATED PARTIES
On June 4, 1996, and June 20, 1996, Laminco, affiliate of the Company,
advanced the Company an aggregate amount of $200,000 pursuant to a loan
agreement. 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. 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. These loans are repayable upon demand
with an interest rate of 10%. In August 1996 and October 1996, payments of
$100,000 and $100,000 respectively were made to Laminco.
On June 14, 1996, the Company borrowed $60,847 from Edward M. Topham,
an officer of the Company, pursuant to a Loan Agreement. This loan is repayable
upon demand with interest accruing at 10%.
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In connection with the identification and acquisition of the Remolino,
Los Leones and Resguardo properties, expenses totaling $138,650 were incurred by
Mr. Roberto Partarrieu. The Company, in connection with the acquisition of these
properties has agreed to reimburse Mr. Partarrieu. Mr. Partarrieu is an officer
of Minera Fremont Gold Chile, S.A.
4. NOTES PAYABLE
On August 21, 1996, the Company commenced an offering of $1,800,000
principal amount of 10.5% Series A Convertible Notes ("Series A Notes") pursuant
to Section 4(2) of the Securities and Exchange Act of 1933, as amended. On
September 30, 1996 the Company had accepted subscriptions totaling $740,000. In
December 1996, the Company completed the offering of Series A Notes and accepted
subscriptions aggregating $1,800,000. Each Series A Note is convertible, at the
option of the Holder into Equity Units at any time after the Issue Date prior to
the close on the Maturity Date at the rate of US$.50 per Equity Unit. Each
Equity Unit is composed of one share of the Company's Common Stock, par value
$.001 per share, and one Redeemable Common Stock Purchase Warrant ("Warrant").
The Warrant is exercisable 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 beginning January 1, 1997,
upon 15 days notice to the Warrant holder, at a redemption price of $.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 anticipates
filing a Registration Statement on Form S-B with the Securities and Exchange
Commission during the fourth quarter of 1996. Such Registration Statement will
include the Common Stock underlying the Series A Notes and Warrants. 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 set forth below:
<TABLE>
<CAPTION>
PRO-RATA SHARES OF COMMON STOCK RELEASE DATE
- ------------------------------- ------------
<C> <C>
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
</TABLE>
5. INCOME TAXES
At December 31, 1995, the Company has net operating tax loss carry
forwards, amounting to approximately $405,771. The losses expire at various
intervals through the year 2010. No deferred tax benefit has been recorded due
to the uncertainty of the Company realizing these benefits through profitable
operation in the future.
6. COMMON STOCK
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.
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In connection with the reverse split the Company maintained the par value
of its Common Stock at $.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 herein have been 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 $.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 of 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 July 30, 1996, the Company completed a private placement of 500,000
shares of its Common Stock to Laminco in consideration of $140,000.
<TABLE>
<CAPTION>
Additional Paid in
Number of Shares Par Value of Shares Capital
---------------- ------------------- ------------------
<S> <C> <C> <C>
As at December 31, 1995 1,000,000 $ 20,000 $471,100
June 6, 1996 forgiveness of debt -- -- 12,000
July 30, 1996 private placement 500,000 500 139,500
July 30, 1996 private placement 1,000,000 1,000 199,000
July 31, 1996 acquisition of Flagship
Holding Ltd. 3,560,000 26,886 --
---------- -------- --------
6,060,000 $ 48,386 $821,600
</TABLE>
7. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
These consolidated financial statements have been prepared in
accordance with Generally Accepted Accounting Principles as applied in the
United States.
Income and loss per share -- Income and loss per share is computed by
dividing the net income or loss by the weighted average number of common shares
outstanding during the applicable period.
Principles of Consolidation -- The consolidated statements include the
accounts of the Company and its 100% owned subsidiary, Flagship Holding Ltd. for
the period presented.
Mineral Properties -- The Company capitalizes the cost of acquiring
mineral claims and exploration costs which are directly related to specific
mineral claims until such time as the extent of mineralization has been
determined and the mineral claims are either developed, abandoned or allowed to
lapse.
Foreign Currency Translation -- Transactions recorded in Chilean pesos
and Barbados pounds are translated as follows:
Monetary assets and liabilities at the rate prevailing at the
balance sheet date.
i) Non-monetary assets and liabilities at historic rates.
14
<PAGE> 15
ii) Income and expenses at the average rate in effect during
the year. Exchange gains or losses are recorded in the
consolidated statement of loss and deficit.
8. SUBSEQUENT EVENTS
a) In December 1996 the Company elected to discontinue exploration on
its Remolino Property and elected not to make any further payments under its
June 17, 1996 option to purchase. Accordingly, the Company has no further
financial obligations to nor ownership interest in the Remolino Property.
b) The Company signed a Letter of Intent with RTZ on December 13, 1996
whereby the Company can earn an initial 51% interest in the Cenizas Property
mining concessions 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.
c) 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 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 April
30, 1997, $135,000 payable on November 30, 1997, $100,000 payable on March 31,
1998 and $100,000 payable 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.
MSE, the Company and the Santa Eloisa Owners will jointly implement a
program, the result of which will be a feasibility study ("Feasibility Study").
The Company and Santa Eloisa Owners will jointly fund the Feasibility Study.
Upon completion of the Feasibility Study, MSE will issue an aggregate of 3,000
series A shares to the Company and the Santa Eloisa Owners in proportion to each
relative contribution to the costs of the Feasibility Study.
Upon completion of the Feasibility Study MSE and the Company will
jointly seek third party debt financing of production facilities sufficient to
bring the mining concessions into production. Should a third party financing
source require the shareholders of MSE to provide additional capital in the form
of subordinated debt or additional equity, the Company has agreed to contribute
on behalf of the series B shareholders their proportionate (25%) share of said
additional capital ("Carried Interest"). The Carried Interest will bear an
interest rate of LIBOR plus 5% and will be repaid by the series B shareholder
out of distributions made by MSE to its series A and B shareholders. The Company
will receive all series B distributions until the Carried Interest plus accrued
and unpaid interest is paid in full.
15
<PAGE> 16
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.
d) Subsequent to September 30, 1996 the Company repaid $36,000 together
with $1,065.20 accrued interest to Edward M. Topham. See Note 3.
e) In January 1997, the Company elected to discontinue exploration on
its Los Leones Property and elected not to make further payments under its June
17, 1996 option to purchase the Los Leones mining concessions. Accordingly, the
Company has no further financial obligations for, or ownership interest in, the
Los Leones Property.
16
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 752,233
<SECURITIES> 0
<RECEIVABLES> 17,626
<ALLOWANCES> 0
<INVENTORY> 413,594
<CURRENT-ASSETS> 769,859
<PP&E> 10,725
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,194,178
<CURRENT-LIABILITIES> 1,100,806
<BONDS> 0
0
0
<COMMON> 48,386
<OTHER-SE> 42,486
<TOTAL-LIABILITY-AND-EQUITY> 1,194,178
<SALES> 0
<TOTAL-REVENUES> 2,152
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 286,201
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (284,049)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (284,049)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
