SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED] OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended 12/31/00
Commission File No. 0-9416
WCM CAPITAL, INC.
(Name of small business issuer in its charter)
Delaware 13-2878202
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
P.O. Box 344, Millburn, New Jersey, 07041
(Address of principal executive offices)
Issuer's telephone number: 212-344-2828
Securities Registered under Section 12(b) of the Exchange Act: None
Securities Registered under Section 12(g) of the Exchange Act: Common
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or 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 [_]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $ 0
State the aggregate market value of the voting and non- voting common equity
stock held by non-affiliates computed by reference to the price at which the
common equity was sold, or the average bid and asked price of such common equity
as of a specified date within the past 60 days. $ 1,459,236
State the number of shares outstanding of each of issuers' class of common
equity, as of the latest practical date. 1,782,676(1) as of March 15, 2001
DOCUMENTS INCORPORATED BY REFERENCE IN PART III - SIX
Transitional Small Business Disclosure Format (check one) Yes [_] No [X]
(1) Includes 169,750 shares and 153,690 shares issued to Richard Brannon and
Joseph Laura and thereafter rescinded. See Item 1. Business-Employees and
Technical Consultants
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PART I TABLE OF CONTENTS PAGE
Item 1 Description of Business 3
Item 2 Properties 6
Item 3 Legal Proceedings 12
Item 4 Submission of Matters to a Vote of Security Holders 15
PART II
Item 5 Market for Registrant's Common Equity 16
and Related Stockholder Matters
Item 6 Management's Discussion and Analysis 18
or Plan of Operation
Item 7 Financial Statements F1 - F26
Item 8 Changes in and Disagreements with 24
Accountants on Accounting and
Financial Disclosure
PART III
Item 9 Directors, Executive Officers, Promoters, 25
and Control Person; Compliance with
Section 16 under the Exchange Act
Item 10 Executive Compensation 26
Item 11 Security Ownership of Certain Beneficial 27
Security Owners and Management
Item 12 Certain Relationships and Related 27
Transactions
PART IV
Item 13 Exhibits, Reports on Form 8-K 31
Signatures
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PART I
Item 1. Description of Business
General
The Company incorporated on December 1, 1976 under the laws of the State of
Delaware, is engaged in the exploration, development and mining of precious and
nonferrous metals, including gold, silver, lead, copper and zinc. The Company
owns or has an interest in a number of precious and nonferrous metal properties.
The Company's principal mining property is the Franklin Mines, located near
Idaho Springs in Clear Creek County, Colorado, for which the Company acquired
the exclusive right to explore, develop, mine and extract all minerals located
in approximately 51 owned and/or patented mining claims (the "Franklin Mines")
and a crushing and flotation mill which is located on the site of the Franklin
Mines (the "Franklin Mill"). The Company cannot assure that a commercially
mineable ore body, i.e. a reserve, exists in the properties comprising the
Franklin Mines, which has been maintained in "stand by" condition since our
inception. While none of our properties were operational in fiscal year 2000,
the Company continues its rehabilitation of the property in anticipation of the
establishment of a commercially mineable ore body and commencement of operations
in the future.
History and Development of the Company
The claims that comprise the Franklin Mines are located on a site upon which
placer gold was discovered above the ground at Idaho Springs, Colorado in 1859.
The Franklin Mines vein system was discovered in 1865. Thereafter, mining
commenced on the site in 1865 and continued on an almost uninterrupted basis
through 1915 until the outbreak of World War I caused curtailment of mining
operations in the area. The principal minerals extracted during this period were
gold, silver, lead, copper, and zinc. The Franklin Mines have not operated on a
continuous or consistent commercial basis since 1915.
On December 26, 1976, the Company acquired Gold Developers and Producers
Incorporated, a Colorado corporation that leased 28-patented mining claims from
Audrey and David Hayden and Dorothy Kennec pursuant to a mining lease and option
to purchase, dated November 12, 1976 (hereinafter collectively referred to as
the "Hayden/Kennec Leases"). In 1981, the Company commenced a rehabilitation
program to extend and rehabilitate the shafts and tunnels in place at the
Franklin Mines, install the Franklin Mill and search for and delineate a body of
minerals. The Company completed the Franklin Mill, which is capable of crushing,
processing and concentrating approximately 150 tons of minerals per 24-hour
period, in 1983.
Operations at the Company's Mining Properties
Since its inception, the Company has spent significant monies constructing the
Franklin Mill, rehabilitating the Franklin and Freighters Friend shafts and
underground workings and constructing surface support facilities of the Franklin
Mines. In recent years, the Company has (a) instituted a plan for quarterly
ground water monitoring which includes surface water and ground water sampling
plans, (b) taken steps to correct run-off problems associated with the Tailings
Pond disposal areas currently located on the property, (c) reclaimed the lined
tailings ponds located adjacent to the Franklin Mill, (d) set forth preliminary
plans for the installation of a paste backfill system for tailings disposal and
(e) applied to the Colorado Division of Minerals and Geology, the state
governing authority for mining and milling (the "DMG") for expansion of the
permitted area at the Franklin Mines and Franklin Mill to allow for performance
of certain of the remediation work outlined above.
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In addition, the Company has instituted an environmental protection plan
containing emergency response plans for designated chemicals which may be used
on site and appropriate measures consistent with local government agencies to
prevent damage to area wildlife form chemicals, toxic or acid forming materials
and/or acid mine drainage. The Company's plan has been approved by the DMG.
(1) The Franklin Mining Properties
During fiscal year 1999 and 2000, no exploration activities were conducted at
the Franklin Mine. The Company continued its rehabilitation and reclamation
efforts. Specifically, the Company continued with its water monitoring programs
and commissioned additional reports and research into claims located on the
mining property.
Throughout 1999, inspections of the Franklin Mining properties revealed that
certain reclamation issues still remained outstanding at the property. Drainage
problems and substandard linings at the tailings disposal areas created
potential hazards and required protection measures are addressed. Tailings Pond
No. 5 was of specific concern to the DMG. After several extensions had been
granted, the Company was unable to complete all of the preventive work required
by the DMG. Due to lack of funds, the Company has not been able to institute its
paste backfill program, which it believes would alleviate the problems currently
existing at its tailings disposal area.
On January 5, 2000, the Company submitted a letter to the DMG to clarify why,
among other things, it has not completed all of the recommended preventive
measures at the site, specifically with respect to its tailings ponds. The
Company explained its difficulty in obtaining needed financing to continue its
reclamation and remediation plans and to begin mining and milling operations at
the Franklin Mines due to the depressed price of gold. Therefore, the Company
concluded that it is economically unfeasible to mine and mill at the properties
at this time. Notwithstanding, the Company does not wish to abandon its business
plan or reclaim the property but rather intends to maintain the mine and mill
site and to comply with all DMG regulations with hopes of restarting the mine
and mill as soon as the price of gold makes it profitable to do so.
On February 7, 2000, the DMG responded to the Company's correspondence with a
recommendation that the Company's mining permit be placed in Temporary
Cessation. Temporary Cessation is a limited period of non-production, which
results when an operator plans to temporarily cease production for at least 180
days upon the filing of notice thereof with the DMG. In the event that a
Temporary Cessation is granted, no further reclamation work or mining work would
be required for the duration of the Temporary Cessation, beyond basic
maintenance and reclamation required to keep the site from further
deterioration. The DMG further indicated that should the Company choose to apply
for Temporary Cessation, certain of the tailings pond area would be required to
be stabilized and the groundwater and the stability of the tailings ponds must
be protected from further deterioration. The DMG required that any notice of
Temporary Cessation submitted must specifically address an alternative interim
reclamation plan for Tailings Pond No. 5 as well as outlining the temporary
stabilization measures needed to comply with these requirements.
As recommended by the DMG, the Company requested for a change of status of its
permit to Temporary Cessation. Following a meeting of the DMG and
representatives of the Company held on February 10, 2000, the DMG set forth the
measures in a letter, dated March 9, 2000, which must be taken by the Company to
bring the site into compliance with groundwater regulations and to stabilize the
tailings pond and site during the Temporary Cessation.
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The Company's application for Temporary Cessation of its permit is still pending
before the DMG. While the Company continues its water monitoring activities and
to work the DMG to obtain Temporary Cessation, there can be no assurance that
our request will be granted. In the event that our application is denied, we
will have to comply with more stringent requirements to keep our permit active.
It is likely that we will be unable to continue rehabilitation and reclaimation
work as required by the DMG due to our lack of funding. Failure to comply with
any rules, regulations or orders of the DMG can result in citations which, if
remained uncorrected, will result in the loss of our mining permit and will have
a material adverse effect on the Company as a whole.
The Company has not conducted any commercial mining operations during fiscal
year 2000 and, as a result, had not generated any revenues from operations at
the Franklin Mine in fiscal year ended December 31, 2000. Therefore, the Company
remains in the exploration stage. Given the Company's efforts to place its
permit in Temporary Cessation, it is unlikely that the Company will commence
exploration in the year 2001. The Company, however, plans to continue to work
closely with the Federal and Colorado state mining regulatory agencies as
required by law to obtain the Temporary Cessation Order and to maintain its
properties until such time as exploration activities can recommence.
(2) Other Ventures
On or about January 11, 1999, US Mining, Inc. ("USM"), a Company wholly-owned by
Mr. William C. Martucci, a director of the Company executed a letter of intent
with agents for the Alamosa Mining and Leasing Company, Inc. and the Renegade,
LLC to enter into a joint venture arrangement for the exploitation of the
Shafter Mining Property located in Clear Creek County, Colorado. USM is engaged
in the business of holding and investing in mining properties. To date, USM's
sole business has been providing the Company with financial support and
contracting to acquire 50% of the mineral rights originally leased by the
Company under the Hayden/Kennec Leases. See Item 2 - Property; Item 12 - Certain
Transactions and Related Parties. The letter of intent was assigned to the
Company on January 11, 1999. After consultation with USM and completion of
preliminary due diligence with respect to the feasibility of commencing mining
operations at the Shafter Mining Property, the Company determined that it was
not feasible to pursue this arrangement and notified the parties of its intent
in April 1999.
On January 18, 2000, the Company, Mr. William C. Martucci, a director of the
Company and USM entered into an agreement whereby the Company would acquire USM
in exchange for approximately 85% of the issued and outstanding shares of the
Company on the closing date The parties were unable to consummate the
transaction and the contract expired on September 30, 2000. See Item 12-Certain
Transactions and Related Parties.
Employees and Technical Consultants
The Company had no full-time employees. The Company's executive officers serve
as needed on a part-time basis for no compensation. The Company will engage
technical personnel and other qualified consultants and experts on a contract or
consulting basis as needed.
On or about June 1, 2000 the Company issued 169,750 shares of Common Stock to
Richard Brannon, a Vice President of the Company and 153,690 shares of Common
Stock to Joseph Laura, a consultant of the Company. The shares were issued to
Laura as compensation for services rendered and to Brannon for present and
future services rendered in connection with the Company's mining business. These
shares were registered by the Company on Form S-8 on or about June 6, 2000.
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On or about December 29, 2000, the Company entered into Agreements with each of
Mr. Brannon and Mr. Laura regarding the issuance of shares to them as
compensation for services. Pursuant to these Agreements, the Company rescinded
its agreement to issue shares to each of Mr. Laura and Mr. Brannon but
acknowledged indebtedness to Laura of $716,500 set forth in the original
Agreement and consulting fees of approximately $175,000 which were earned by Mr.
Brannon from May 2000 through December 31, 2000.
Item 2. Properties
Glossary of Terms
Assay A chemical evaluation of metal content
conducted After mining ore.
Backfill Mine waste which is disposed of
underground in a formerly mined area.
Chalcopyrite A mineral containing copper, iron and
sulphur.
Exploration Stage Company Companies engaged in the preparation of
an Established commercially mineable
deposit or reserve for its extract which
are not in the production stage.
Dip An angle measured in degrees from the
horizon.
Fault A fracture in the earth through which
mineralizing solutions may rise and form
a vein.
Fault System A large regional fracture.
Footwall That portion of the vein which is
located below.
Galena A mineral containing both lead and
sulphur.
Hanging wall That portion of the vein which is
overhead.
J.L. Emerson Fault A large fracture in the earth' s crust
located in the Franklin Mine area.
Main Trunk A highly mineralized portion of the J.L.
Emerson fault located on the properties
constituting the Franklin Mines.
Microcline gneiss A type of rock found at the Franklin
Mine.
Mill The plant facility where the metals
constituting the ore are removed from
mined rock.
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Mineralized Material A mineralized body which has been
or Deposit delineated by appropriate drilling
and/or underground sampling to support
sufficient tonnage and average grade of
metals under SEC standards. Such a
deposit does not qualify as a reserve
until a comprehensive evaluation, based
upon unit cost, grade, recovers and
other factors, concludes economic
feasibility.
Monzonite Intrusive rock types containing large
Amounts of quartz and often the
progenitor of metallic, mineralizing
solutions.
Orogeny An event causing a major upheaval or
reshapement of the earth's crust, such
as volcanism, mountain building or ore
formation.
Paste Backfill Procedure in which backfill is
treated with certain chemicals to
solidify the same to prevent seepage.
Pillars Unmined sections of ore in a stope.
Pre-Cambrian age A time period in history dating back
approximately 600 million years ago.
Probable (Indicated) Reserves Reserves for which quantity and grade
and/or quality and computed from
information similar to that used for
proven reserves, but the site for
inspection, sampling and measurement are
farther apart or are otherwise less
adequately spaced. The degree of
assurance, although lower than that for
proven reserves, is high enough to
assume continuity between point of
observation.
Proven (Measured) Reserves Reserves for which (a) quantity is
computed from dimensions revealed in
outcrops, trenches, workings or drill
holes; grade quality are computed from
the results of detailed sampling and (b)
the sites for inspection, sampling and
measurement are spaced so closely and
the geologic character is so well
defined that size, shape, depth and
mineral content of reserves are well
established.
Pyrite A mineral containing both zinc and
sulphur.
Raise A tunnel driven upward from a level.
Reserves A reserve is that part of a mineral
deposit which could be economically and
legally extracted or produced at the
time of the reserve determination.
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Shaft A vertical tube-like opening whereby
miners enter the mine.
Sphalerite A mineral containing both zinc and
sulphur.
Strike In a horizontal direction.
Stope The area of the mine where miners
extract mineral deposits from the mine.
Tailings Waste, which is produced by the Mill.
Tailings Pond The location where mill wastes are
deposited.
Telluride A mineral containing tellurium often
found with quantities of gold and/or
silver and sulphur.
Tennentite A complex mineral containing copper,
antimony or silver.
Tertiary Period A time period in history dating back
approximately 40 to 70 million years
ago.
Vein A fracture in the earth's crust where
minerals have been deposited.
Winze A tunnel driven downward from a level.
Colorado Mining Properties
The property which constitutes the Franklin Mines consists of (i) leasehold
interests in the mineral rights to 28 claims comprising approximately 322 acres
evidenced by the Hayden/Kennec Leases and (ii) an additional 23 claims leased
and/or purchased by the Company comprising approximately 20 additional acres,
for a total of 51 claims over 340 acres. The Franklin properties include all
improvements made by the Company thereon, including the Franklin Mill capable of
supporting up to a 150 ton per day operation in its present state. The Company
is required to pay taxes and certain other expenses relating to the properties
leased. Management believes that it currently maintains adequate insurance for
all of its mining properties.
Hayden/Kennec Leases
Under the original terms of the Hayden/Kennec Leases, which expired in November
1996, the Company was required to pay an aggregate minimum royalty payment of
$2000 or 5% of the net smelter royalties realized by the Company to Mrs. Hayden
and Mrs. Kennec. The Company was also required to pay all other amounts with
respect to maintenance and upkeep of the property including any taxes. The
Hayden/Kennec Leases also contained an option to purchase the leased mineral
rights for a purchase price of $1,250,000 less all royalty payments made during
the term of the lease.
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As of the expiration date, the Company had paid $480,000 in royalties, which
would have set the option price at $770,000. In November 1996, the Company was
granted a one-year extension of the Hayden/Kennec Leases under the same terms
and conditions.
In late 1997, the Company had been in discussions with Martucci to effectuate a
business combination with certain of his entities. See Item 12 - Certain
Relationships and Certain Transaction. During these discussions, the Company
explained to Martucci the situation regarding the Hayden/Kennec leases. By this
time, the extension period was set to expire and the Company was unsuccessful in
its efforts to renegotiate the terms of the lease. In addition, Mrs. Hayden had
entered into an agreement with Gems & Minerals Corp., a former joint venture
partner of the Company, to sell her 50% interest to Gems for a cash payment.
This purchase agreement was set to expire and it was unlikely that Gems would
consummate the purchase by the expiration date. Additionally, the Company was in
the process of severing its relationship with Gems, which would further
aggravate the situation regarding the leases.
The Company explained to Martucci the importance of maintaining an interest in
the mineral rights covered by the Hayden/Kennec Leases as they represent over
50% of the mineral claims available to the Company for exploration and
development. Since the Company did not posses the funds to purchase the Hayden
Interest and was unsuccessful in its efforts to renegotiate the Hayden/Kennec
Leases, USM began negotiations with Mrs. Hayden to acquire her interest.
On November 13, 1997, just prior to the expiration of the extension period of
the Hayden/Kennec leases, USM entered into an agreement with Mrs. Hayden to
purchase her 50% interest (the "Hayden Interest") in the mineral rights (the
"Purchase Agreement"). Mrs. Hayden had sold her portion of the surface rights to
the Company in August 1982.
Pursuant to the Purchase Agreement, Mrs. Hayden agreed to sell to USM the Hayden
Interest for $75,000, which would be evidenced by a note issued to Hayden by USM
at the consummation of the sale. The Purchase Agreement also contained a
provision that extended the Hayden/Kennec Leases with respect to the Hayden
Interest until March 13, 1998 and required USM to pay royalty payments of $1,000
per month.
As of the date hereof, USM has not consummated the purchase of the Hayden
Interests because of title issues pertaining to the ownership of the properties;
however, the terms of the Purchase Agreement remain in effect and Mrs. Hayden
has agreed to further extend the Hayden/Kennec Leases with respect to the Hayden
Interest through December 31, 2001. The Company has also been advised by USM
that all royalty payments have been paid and will continue to be paid to Mrs.
Hayden until the sale is consummated or the Purchase Agreement is terminated.
Since November 1997, USM has paid royalty payments to Mrs. Hayden of
approximately $37,000 through December 31, 2000.
Fifty percent (50%) of the rights comprising the original Hayden/Kennec Leases
is owned by Mrs. Kennec (the "Kennec Interest"). Upon the expiration of
extension period of the Hayden/Kennec Leases, the Company entered into an
extension agreement with Mrs. Kennec to extend the Hayden/Kennec Leases as they
pertain to the Kennec Interest until March 12, 1998. No further extensions have
been granted by Mrs. Kennec and the Company is not in discussions with Mrs.
Kennec regarding her interest in the mineral rights. While the Company had
discussions with Mrs. Kennec in the past regarding her interests, we could not
come to terms acceptable to either party. The Company has not had meaningful
discussions with Mrs. Kennec in some time and it is unlikely that negotiations
will resume with Mrs. Kennec any time in the near future.
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Currently, the ability of the Company to exploit the mineral rights evidenced by
the Hayden/Kennec Leases is unclear. In 1994, Gems received an opinion of
counsel from Freeborn & Peters, stating that Colorado Law would permit the
exploitation of the mineral rights that are not 100% owned by one party so long
as the non-participating owner (Mrs. Kennec) is paid whatever net profits are
owed to her upon commencement of operations. Since USM is in a position to
purchase the Hayden Interest, we are hopeful that our inability to come to an
Agreement with Mrs. Kennec with respect to the Kennec Interest will not prohibit
us from exploiting these mineral rights. Our belief assumes that we maintain our
relationship with USM and that USM will consummate the purchase of the Hayden
Interest and allow us to exploit these claims.
It is important to note that since the legal opinion on which we are relying is
several years old, the statements made may be out of date and may not apply to
our current situation. In the event that the advice rendered in the opinion
letter is not applicable, the fact that the Company does not own a 100% interest
in the mineral rights subject to the Hayden/Kennec Leases may severely limit the
ability of the Company to exploit these minerals should we decide to commence
operations in the future. Moreover, if USM fails to acquire the mineral rights
from Mrs. Hayden prior to the expiration of the Purchase Agreement or if USM
should acquire the rights but decide not to allow the Company access to them,
the Company will no longer have any access to the mineral rights covered by the
Hayden/Kennec Leases.
Location and Access
The Franklin Mines and Franklin Mill are located in Clear Creek County,
Colorado, approximately 2.7 miles north of the town of Idaho Springs, which is
accessible from Interstate 70 approximately 33 miles west of Denver. The mine
location is accessible year round, except in the case of a major snowstorm in
winter months.
Mineralization in the Area
Most of the minerals deposition in the area where the Franklin Mine is located
has been credited to the period of the Laramide Orogeny. Minerals extracted from
the region included gold, silver, copper, lead, zinc, and uranium. By far the
largest single metal values were in gold, with silver being a distant second.
Though many of the smaller veins located in the area pinched out at moderate
depth, some have shown strong mineralization at greater depths.
The minerals deposits are of four types: (i) pyritic gold minerals; (ii)
galena-sphalerite minerals; (iii) composite (pyrite-galena-sphalerite) minerals
and (iv) telluride minerals. Pyritic gold minerals are chiefly associated with
pyrite, chalcopyrite, and tennentite. The "composite minerals" are believed to
be the result of two or more periods of mineralization, with pyritic minerals
first and galena-sphalerite second; mineral content varies widely with the
relative percentage of the different types of ore present. Telluride minerals
are present mostly in the Northeast corner of the district, but some telluride
minerals have been noted elsewhere.
Geology of the Franklin Mines
The rocks most commonly seen in the Franklin Mines are Pre-Cambrian age granite
and microcline gneiss. Tertiary Period, monzonite, the most common of which is
quartz monzonite, can be seen on the ninth level and are reported from lower
levels in the Gem vein or Gem workings of the Franklin Mines. The general strike
of the system is N75 degrees W with dips varying from 45(0) to 79(0).
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The structure of the mines is controlled by the J.L. Emerson Fault system that
runs in a west-northwest direction across the whole property and beyond.
Secondary to the J.L. Emerson Fault are multitudes of small fissure veins that
are parasitic to the main break. Some of these veins contribute to considerable
mineralization where they intersect the J.L. Emerson Fault structure. These
mineral bodies are observable in several locations in the Franklin 73 mine and
the Gem mine, one measuring 22 feet wide and 60 feet in length. It has been
reliably reported that some of the large stopes mined in the Gems workings
measured up to 105 feet in width.
Estimated Mineralized Material
Mineralization of the Franklin Mine and associated Gem, the Freighter mines is
that generally associated with the "Main Trunk" of the J.L. Emerson Fault. No
reference is being made regarding the mineral potential of structures situated
adjacent to, or off the "Main Trunk".
Sampling by the channel sample method was conducted during the period of 1975
through 1993 with assaying provided by the Franklin and other accredit ed assay
laboratories. Assays were also obtained from the old Gem Mining Co. mine assay
map, dated 1921 (the "Gems Assay Map"). The sampling process was carried out at
right angles to the strike of the veins. Blocks were sampled on three or four
sides and at times within by raise or winze. Those blocks, which were
extensively mined, were entered where possible through open stopes with both
pillars and "backfill" being sampled.
The Franklin mineral structure is generally a tabular structure in shape and
consisting of several parallel to sub-parallel veins, striking in a westerly
direction and dipping at 45(0) to 79(0) north. Its depth is unknown.
The J.L. Emerson Fault is a large regional structure, striking east to west and
having an irregular plain that dips to the north at 45 to 79 degrees. The J.L.
Emerson Fault is associated throughout with a series of parallel to sub-parallel
sigmoidal shaped fractures that may focus east or west on the principal fault
plain. These fracture patterns are found on nearly all levels and represent
important Parallel mineralized fault fractures, the so-called "footwall" and
"hanging wall" veins. Each of the principal veins has historically contributed
to production in the Gem vein. A second set of true fissure veins of a later
date and striking northeast and southwest interdict the J.L. Emerson Fault at
several points, but does not cross. These veins are of unknown economic
potential.
The mineral structures in the Franklin Mines are often large, but poorly
defined. It was suggested that a core-drilling program be conducted at promising
locations to determine mineralized zones therein.
The Company has not developed a systematic exploration methodology to increase
the tonnage of mineral deposits, which have been drilled and channel sampled by
our geologists due to the fact that the Company is in the process of placing its
mining permit in Temporary Cessation. There is no assurance that any reserves
exist in the Franklin Mine system. Moreover, mining activities are not possible
without the existence of a commercially viable ore body. A core-drilling program
and a comprehensive economic evaluation will be required to determine whether a
commercially viable ore body exists and whether it is economically Feasible to
exploit such ore body should one exist.
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Operations
During 1999, the Company continued reclaimation and rehabilitation activities in
hopes of conducting additional exploration to obtain more detailed evaluations
of its mineralized material. The Company ceased these activities during 2000 and
focused its efforts on preparing its properties for Temporary Cessation. The
Company is currently awaiting approval of its application.
The Company continues to explore the possibility of obtaining custom milling
business from small operators in the general area. Our efforts have been
unsuccessful to date.
USM has verbally pledged to continue to provide financing to the Company on an
as needed basis through December 31, 2001. This financing is in addition to the
advances made to the Company by USM from 1998 though December 31, 2000. Other
alternatives such as private placements, loans, or public offerings may be
considered for future operating capital; however, it is uncertain as to whether
any of these financing options will be viable alternatives for the Company's
capital needs.
As mining is a regulated business, compliance with regulatory requirements of
the various agencies having jurisdiction over the Company's activities may cause
delays in the schedules set by the Company for returning the status of its
permit to active and performing work as may be needed from time to time.
Moreover, capital outlays in excess of those anticipated may be required by
regulatory bodies; thus adversely affecting the scope and timing of future plans
and operations.
Mill/Metallurgy
In the past, the Franklin Mill operated on a limited schedule while exploration
and development was taking place. While the Franklin Mill has not operated with
respect to the milling of minerals, limited-crushing activities took place in
early 1996 for the purpose of preparing bulk mineral samples for assay. We
anticipate that the Company's permit will be placed in Temporary Cessation, and
therefore, it is unlikely that the Company will conduct any crushing activities
in 2001. However, if economically feasible opportunities present themselves, the
Company may make application to the DMG for a change in permit status in the
future.
Offices of the Company
The Company maintains its executive offices in Millburn, New Jersey and
maintains an office on site at the Franklin mine in Idaho Springs.
Item 3. Legal Proceedings
The Company, from time to time, may become involved in various legal actions
associated with the normal conduct of its business operations. No such actions,
other than those set forth below, involve known material gain or loss
contingencies not reflected in the Company's financial statements.
Convertible Debentures
On June 1, 1994, the Company advised the Transfer Agent/Trustee that the Company
was not in compliance with certain of the terms of the indenture (the
"Indenture") relating to the Company's 12 1/4% Convertible Debentures (the
"Debentures") in that it had not maintained current filings with the Securities
and Exchange Commission (the "Commission") as required. Accordingly, the
Transfer Agent/Trustee was instructed not to convert any of the Debentures into
Common Stock of the Company until such time as the Company notified the Transfer
Agent.
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Page 12
The Company failed to make required sinking fund payments in 1994 and was unable
to pay the principal balance of the Debentures due on December 31, 1994
resulting in default under the terms of the Indenture.
In September, 1997, certain of the Company's 12 1/4% Convertible Debenture
holders, including the Hopis Trust (the "Plaintiff Debentureholders") instituted
an action in the Supreme Court of the State of New York against the Company for
payment on approximately $42,500 principal amount of Debentures plus accrued and
unpaid interest totaling approximately $13,000 and other costs and expenses
related thereto.
Thereafter, the Plaintiff Debentureholders moved for summary judgment against
the Company. The Company did not to oppose the motion and default was entered
against the Company in the amount of $42,500 plus interest, costs and
disbursements (the "Default"). Moreover, the issue of attorney's fees was
severed from the case and all to be set down for an inquest.
In February 1998, USM entered into an Agreement with the Plaintiff
Debentureholders agreeing to pay the Judgment plus certain additional costs in
the event that the Company fails to pay the Judgment and USM consummates the
Transaction with the Company. In the event that USM did not consummate the
Transaction by July 12, 1998, USM agreed to pay the Plaintiff Debentureholders
$5,100 for their Agreement not to enter the Judgment against the Company or
pursue the inquest. Plaintiff Debentureholders agreed not to enter the Judgment
against the Company until July 12, 1998 or until USM notifies them that it will
not pursue the Transaction.
On or about April 6, 1998, Martucci terminated his letter of intent to
consummate the Transaction with the Company. Despite such termination, Plaintiff
Debenture holders agreed to extend the terms of their Agreement with USM through
December 1998. As of date hereof, the Company is not aware of any further
extension nor, to its knowledge has the Judgment been entered. If the proposed
settlement is not consummated, there can be no assurance that the Judgment will
not be entered and the Company will be required to pay the amount of the
Judgment, including any costs, interest and penalties related thereto.
The continued default in the Debentures by the Company may result in Company
being subject to additional legal proceedings by the Transfer Agent/Trustee
under the Indenture or from other holders seeking immediate payment of the
$102,500 plus related interest and penalties. While the Company hopes to cure
the default or, in the alternative, reach an acceptable settlement arrangement
with the holders, there can be no assurance that the funds will be available in
the future to meet all of the Company's obligations.
On November 2, 2000 American Stock Transfer and Trust Company served the Company
with a summons, as Trustee under the Indenture dated January 2, 1990 to receive
damages on behalf of the holders of the Company's 12-1/4% Convertible Debenture
Holders in the amount of $142,000.00 plus interest and other fees. This action
is as a result of the default on the Debentures described above and are separate
and apart from the September 1997 action, which involves specific debenture
holders. As of the date of this report, there has been no further developments
with either proceedings.
NASDAQ Delisting
From January 11, 2000 through December 31, 2000, the Company has been in
compliance with the requirements for continued listing on the NASDAQ Small Cap
Market; however, there can be no assurance that in the future the Company will
maintain such compliance. Should this occur, our stock might be subject to
delisting from the NASDAQ Small Cap Market. In such event, Management is hopeful
that the Company's Common Stock will qualify for trading on the
Over-The-Counter/Bulletin Board ("OTC") market and the Company will make every
effort to include its Common Stock on the OTC in the event of a delisting by
NASDAQ.
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Page 13
In the event that the Company's Common Stock is traded on the OTC, it may become
subject to the "penny stock" trading rules. The penny stock trading rules impose
additional duties and a responsibility upon broker-dealers recommends the
purchase of a penny stock (by a purchaser that is not an accredited investor as
defined by Rule 501(a) promulgated by the Commission under the Securities Act)
or the sale of a penny stock. Among such duties and responsibilities, with
respect to a purchaser who has not previously had an established account with
the broker-dealer, the broker-dealer is required to (i) obtain information
concerning the purchaser's financial situation, investment experience, and
investment objectives, (ii) make a reasonable determination that transactions in
the penny stock are suitable for the purchaser and the purchaser (or his
independent adviser in such transactions) has sufficient knowledge and
experience in financial matters and may be reasonably capable of evaluating the
risks of such transactions, followed by receipt of a manually signed written
statement which sets forth the basis for such determination and which informs
the purchaser that it's unlawful to effectuate a transaction in the penny stock
without first obtaining a written agreement to the transaction. Furthermore,
until the purchaser becomes an established customer (i.e., having had an account
with the dealer for at least one year or, the dealer had effected three sales or
more of penny stocks on three or more different days involving three or more
different issuers), the broker-dealer must obtain from the purchaser a written
agreement to purchase the penny stock which sets forth the identity and number
of shares of units of the security to be purchased prior to confirmation of the
purchase. A dealer is obligated to provide certain information disclosures to
the purchaser of penny stock, including (i) a generic risk disclosure document
which is required to be delivered to the purchaser before the initial
transaction in a penny stock, (ii) a transaction-related disclosure prior to
effecting a transaction in the penny stock (i.e., confirmation of the
transaction) containing bid and asked information related to the penny stock and
the dealer's and salesperson's compensation (i.e., commissions, commission
equivalents, markups and markdowns) connection with the transaction, and (iii)
the purchaser-customer must be furnished account statements, generally on a
monthly basis, which include prescribed information relating to market and price
information concerning the penny stocks held in the customer's account. The
penny stock trading rules do not apply to those transactions in which the
broker-dealer or salesperson does not make any purchase or sale recommendation
to the purchaser or seller of the penny stock.
Required compliance with the penny stock trading rules affect or will affect the
ability to resell the Common Stock by a holder principally because of the
additional duties and responsibilities imposed upon the broker-dealers and
salespersons recommending and effecting sale and purchase transactions in such
securities. In addition, many broker-dealers will not effect transactions in
penny stocks, except on an unsolicited basis, in order to avoid compliance with
the penny stock trading rules. The penny stock trading rules consequently may
materially limit or restrict the liquidity typically associated with other
publicly traded equity securities. In this connection, the holder of Common
Stock may be unable to obtain on resale the quoted bid price because a dealer or
group of dealers may control the market in such securities and may set prices
that are not based on competitive forces.
Furthermore, at times there may be a lack of bid quotes which may mean that the
market among dealers is not active, in which case a holder of Common Stock may
be unable to sell such securities. Because market quotations in the
over-the-counter market are often subjected to negotiation among dealers and
often differ from the price at which transactions in securities are effected,
the bid and asked quotations of the Common Stock may not be reliable.
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Page 14
Item 4. Submission of Matters to a Vote of Security Holders
2000 Annual Meeting of Shareholders
On November 24, 2000, the Company held its annual meeting of shareholders, in
South San Francisco, California at which time the shareholders (i) reelected
Messrs Waligunda, Martucci, Wishinsky, Myhre and DeMartino to the Board of
Directors and (ii) confirmed JH Cohn as independent auditors of the Company.
Of the 1,782,676 shares entitled to vote at the meeting, 1,498,670 were present
either in person or by proxy constituting a quorum for purposes of conducting
the business that was brought before the meeting. The following table sets forth
the matters brought before the shareholders, the number of votes cast for,
against or withheld, as well as the number of abstentions and broker non-votes,
if any, for each matter.
Matter For Against Abstain
------ --- ------- -------
Election of 1,478,103 14,083 6564
Robert Waligunda
as Director
Election of 1,478,103 14,083 6564
William C. Martucci
as Director
Election of 1,478,103 14,083 6564
William Wishinsky
as a Director
Election of Casey 1,478,103 14,083 6564
Myhre as a Director
Election of Vincent 1,478,103 14,083 6564
A. DeMartino as a Director
Confirmation of 1,490,886 4062 3722
Independent Auditors
December, 1999 Special Meeting of Shareholders
On December 13, 1999, the Company held a special meeting of stockholders to
consider a proposal to amend the Company's Certificate of Incorporation to
reverse split the Company's outstanding shares of common stock on a
three-for-one basis and to reduce the authorized capital of the Company from
100,000,000 to 40,000,000. Of the 3,991,107 shares entitled to vote at the
meeting, 3,016,123 were presented either in person or by proxy constituting a
quorum for purposes of conducting the business that was brought before the
meeting. The amended Certificate of Incorporation was filed with the Secretary
of State of the State of Delaware on December 17, 1999.
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Page 15
1999 Annual Meeting of Shareholders
On November 15, 1999, the Company held its annual meeting of shareholders in
Springfield, New Jersey at which time the shareholders (i) re-elected Messrs.
Waligunda and Martucci, and elected William H. Wishinsky, Casey Myhre and John
Bruno to the Board of Directors of the Company and (ii) confirmed Lazar, Levine
& Felix as independent auditors of the Company.
Of the 3,991,107 shares entitled to vote at the meeting, 3,016,123 were present
either in person or by proxy constituting a quorum for purposes of conducting
the business that was brought before the meeting. The following table sets forth
the matters brought before the shareholders, the number of votes cast for,
against or withheld, as well as the number of abstentions and broker non-votes,
if any, for each matter.
Matter For Against Abstain
------ --- ------- -------
Election of
William C. Martucci 2,969,910 46,213 ----
As a Director
Election of
Robert Waligunda
as Director 2,969,910 46,213 ----
Election of
William 2,968,370 47,753 ----
Wishinsky as a Director
Election of Casey 2,968,370 47,753 ----
Myhre as a Director
Election of John 2,968,342 47,781 ----
Bruno as a Director
Confirmation of
Independent Auditors 2,962,757 42,205 11,161
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The principal U.S. market on which shares of the Company Common Stock (all of
which are of one class, $.01 per share) are traded on the small cap market on
the National Association of Securities Dealers, Inc. Automated Quotation System
(Symbol "WCMC"). For Information regarding possible delisting of the Company's
Common Stock. See Item 3. Litigation NASDAQ Delisting.
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Page 16
The following table sets forth the range of high and low bid quotes of the
Company's Common Stock per quarter since the beginning of fiscal year 1998 as
reported by the National Quotation Bureau (which reflects inter-dealer prices
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions). The following stock prices have been adjusted to
reflect a one for twenty-five reverse stock split which occurred on May 26, 1998
and a one-for-three reverse stock split effected on December 13, 1999 except as
noted.
High Low
Quarter Ended Bid Price Bid Price
March 31, 1998 $1.5625 $1.5625
June 30, 1998 $2.25 $1.5625
September 30, 1998 $1.50 $1.00
December 31, 1998 $0.875 $0.4375
March 31, 1999 $1.125 $1.06
June 30, 1999 $1.50 $0.4375
September 30, 1999 $1.00 $0.9375
December 31, 1999 $2.50 $1.00*
March 31, 2000 $5.50 $5.50
June 30, 2000 $1.75 $1.4375
September 30, 2000 $2.00 $1.8125
December 31, 2000 $0.875 $0.6875
----------
* Takes into account one for three reverse split effective December 20, 1999
As of December 31, 2000, the approximate number of recordholders of the
Company's Common Stock is 2,749 inclusive of those brokerage firms and/or
clearinghouses holding the Company's Common Shares in street name for their
clientele (with each such brokerage house and/or clearing house being considered
as one holder).
The aggregate number of shares of Common Stock issued and outstanding is
1,782,676 as of March 15, 2001. This number includes 323,440 shares issued to
Mr. Brannon and Mr. Laura and thereafter rescinded. See Item 1. Business
Employees and Technical Consultants and Sales of Restricted Securities below. No
dividends on Common Shares have ever been paid by the Company due to the lack of
excess capital and the Company does not anticipate that dividends will be paid
in the foreseeable future. In addition, pursuant to the terms of the Company's
12-1/4% Convertible Debentures, the Company, the Company is prohibited from
paying dividends on its Common Stock unless and until it is no longer in default
under the debentures. See Item 3. Litigation.
Sales of Restricted Securities
On or about June 1, 2000 the Company issued 169,750 shares of Common Stock to
Richard Brannon, a Vice President of the Company and 153,690 shares of Common
Stock to Joseph Laura, a consultant of the Company. The shares were issued to
Laura as compensation for services rendered and to Brannon for present and
future services rendered in connection with the Company's mining business. These
shares were originally issued in accordance with the exemption from registration
under Section 4(2) of the Act and were subsequently registered by the Company on
Form S-8 on or about June 6, 2000.
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Page 17
On or about December 29, 2000, the Company entered into Agreements with each of
Mr. Brannon and Mr. Laura regarding the issuance of shares to them as
compensation for services. Pursuant to these Agreements, the Company rescinded
its agreement to issue shares to each of Mr. Laura and Mr. Brannon but
acknowledged indebtedness to Laura of $614,760.00 and Consulting fees of
approximately $175,000 which were earned by Mr. Brannon from May 2000 through
December 31, 2000.
Item 6. Management's Discussion and Analysis or Plan of Operation
CAUTIONARY STATEMENT ON FORWARD LOOKING STATEMENTS
Except for the historical information contained herein, Management believes that
certain of the matters discussed in this Annual Report for the year ended
December 31, 2000 are "forward looking risks and uncertainties which cause
actual results to differ materially from those discussed herein including, but
not limited, risks relating to changing economic conditions, change in price of
disclosed in this Annual Report. The Company cautions readers that any such
forward-looking statements are based upon management's current expectations and
beliefs but are not guaranties of future performance. Actual results could
differ materially from those expressed or implied in forward-looking statements.
The Company is engaged in the business of investing and participating in the
development of commercial mining and milling operations primarily involving
leased properties for which the mineral rights are leased in or near Idaho
Springs, Colorado.
During 1999, remediation work and rehabilitation was performed and completed at
the Franklin Mines and the Franklin Mill to prepare for commencement of
operations in the future. However, in 2000, economic conditions and other
factors led to the Company's decision to apply for a change in its permit status
from active to Temporary Cessation. Temporary Cessation is a limited period of
non-production, which results when an operator plans to temporarily cease
production for at least 180 days upon the filing of notice thereof with the DMG.
When a request for Temporary Cessation is granted, no further reclamation work
or mining work would be required for the duration of the temporary cessation,
beyond basic maintenance and reclamation required to keep the site from further
deterioration
The Company has not commenced commercial operations at the Franklin Mine since
our inception. Therefore, the Company remains in the exploration stage and has
not generated significant revenues on a sustained basis. The Company did not
realize any revenues based on sales in 2000 and 1999.
Liquidity and Capital Resources
Since its inception, we have financed our activities principally through the
sale of equity securities, the accumulation of debt and monies provided through
our relationship with USM. Since 1998, the Company's sole source of funding has
been USM. The Company has derived no income from its mining and milling
investments, which as of December 31, 2000, were comprised of investments in the
assets and rights related to the Franklin Mines and Mill. As of December 31,
2000, no funds where borrowed form USM. The US Mining note had a principle
amount of $1,768,829 which was a debt to equity exchange recorded as paid in
capital as of December 31, 2000 for future consideration. The equity exchange
was principle only and the interest in the amount of $328,040 still remains due
as of December 31, 2000 to US Mining
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Page 18
The Company had total current liabilities as of December 31, 2000 of $2,266,315,
convertible debentures with a principal amount of $145,000 and other notes
payable with a principal balance of $287,028. In addition to the payment of its
current liabilities, the Company incurred general, administrative and other
costs and expenditures related to any mining and milling operations, at the rate
of approximately $25,000 per month in 2000 and expects to incur additional
administrative expenses of approximately $25,000 per month plus interest in
2001.
During 2000 and 1999, USM advanced approximately $298,534 and $278,000,
respectively, on behalf of the Company. The US Mining note had a principle
amount of $1,768,829 which was a debt to equity exchange recorded as paid in
capital as of December 31, 2000 for future consideration. The equity exchange
was principle only and the interest in the amount of $328,040 still remains due
as of December 31, 2000 to US Mining These monies were used primarily for legal
and accounting fees in connection with public filings and necessary general and
administrative expenses. USM has continued to fund the Company directly or
indirectly since mid 1997. USM has verbally pledged to provide financing to the
Company on an as needed basis through December 31, 2001. The Company believes
based on prior performance that USM will fulfill its commitment to fund until
December 31, 2001. It is anticipated that the funds received from USM will cover
the general, administrative and other costs, which Management estimates will be
approximately $25,000 per month for the year 2001. Management believes that the
estimate of monthly expenses will include any incidental costs incurred in
connection with the maintenance of the mining facilities in Idaho Springs and
related taxes. However, certain unforeseen costs may arise during the course of
the year and the Company cannot assure that USM will commit to provide the
Company with additional monies should such expenses arise.
The Hayden/Kennec Leases cover mineral rights to 28 mining claims over 322 acres
of the Franklin Mining properties. Currently, the Hayden/Kennec Leases are
expired; however, the terms of the Purchase Agreement between USM and Hayden
extend the terms of the Hayden/Kennec Leases as they relate to the Hayden
interests upon the same terms and conditions of the Hayden/Kennec Leases.
Therefore, USM has advanced, and is continuing to advance, $1,000 royalty
payment to Mrs. Hayden on a monthly basis as required by the Hayden/Kennec
Leases. As of the date hereof, the Company has not reached any Agreement with
Mrs. Kennec concerning her portion of the Leasehold. See Item 2 - Properties.
Under the terms of the Hayden/Kennec Leases, the Company would have been
required to pay $777,000 to Mrs. Hayden and Mrs. Kennec in order to exercise the
purchase options set forth therein as of November 1997 when the lease expired.
Although the exercise price may be less if additional moneys paid to Hayden and
Kennec after November 1997 are credited, the Company is unable to make such
payment. Notwithstanding, Management remains cautiously optimistic that it will
maintain its access to the leased mineral rights covered by the Hayden/Kennec
Leases since the Purchase Agreement between Mrs. Hayden and USM remains in
effect and the Company has no reason to believe at this time that the sale will
not be consummated prior to the expiration of the Purchase Agreement. USM has
advised the Company that it is current with its payments to Mrs. Hayden and the
Company, based upon the prior commitments and past payment history of USM,
believes that USM will continue to make the necessary royalty payments to Mrs.
Hayden until the purchase of Mrs. Hayden's leasehold interest is consummated.
See Item 2 - Properties.
In the absence of liquid resources, cash flows from operations and any other
commitments for debt or equity financing, Management believes that the ability
of the Company to continue to maintain its properties will be dependent upon the
provision of financing by USM; however, it cannot assure that USM will continue
to finance the Company after December 31, 2001. Management believes that the
Company will remain dependent on USM as its primary source of financing for its
operations until such time, if any, as the Company can secure additional funding
from other sources.
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Page 19
The Company has conducted no exploration activities during 2000 and has no plans
to do so in 2001. However, as a condition to granting the Company's request for
Temporary Cessation, the DMG required that the Company address certain issues
with respect to groundwater and tailings disposal ponds. Thus, the Company's
efforts during the majority of 2000 were focused on addressing these issues. The
Company is continuing these efforts and is awaiting approval of its application
from the DMG. This status will allow the Company to retain all its permits.
However, given the current economic climate and lack of reserves, it is unlikely
that the Company will commence any operations in the year 2001.
Management estimates that the Company will incur general, administrative and
other costs and expenditures, exclusive of any costs and expenditures related to
its Idaho Springs Mining properties and interest, at the rate of approximately
$25,000 per month for the remainder of 2001.
U.S. Mining Co. has verbally pledged to provide financing to the Company on an
as needed basis until on or about December 31, 2001. The Company cannot assure,
however, that USM will fulfill its commitment to fund the Company's operations
through year-end 2001. The funds received from USM will cover the general,
administrative and other costs approximated at $25,000 per month plus interest.
There can be no assurance that the Company will have adequate funds available to
repay the funds advanced by USM or that USM will fulfill its obligations to fund
the Company through December 31, 2001. In the event that the Company defaults on
its obligations, USM may foreclose on the assets secured by the USM note. Such
foreclosure actions by USM would have a material adverse effect on the future
operations of the Company and the Company's ability to maintain its permits and
explore the Franklin Mines.
Plan of Operations
In 2001, the Company's primary focus will be to (i) continue its rehabilitation
and remediation work as is statutorily required to maintain its properties and
permit's Temporary Cessation status, (ii) seek possible joint ventures with
neighboring mines and (iii) work to secure additional funding for its
operations. Should the Company become unable to adequately maintain its
properties as required by the DMG, it may face the possibility of being cited
for violations by the DMG which can lead to a cease and desist order or, result
in the loss of our mining permit. The loss of our mining permit would have a
serious adverse effect of the future operations of the Company as a whole.
We believe that the best way to achieve profitability in the short term would be
to seek to acquire businesses, which are operational and generating revenues.
Since the prices of metals and other minerals are low at this time, the Company
is open to entertaining possible business combinations or joint ventures with
operational businesses, irrespective of whether a target business is operating
in our business segment.
The Company has no immediate plans to abandon our efforts at our Colorado mining
properties or to sell a portion or all of our interests in these properties.
However, the Company has not developed an exploration plan and does not
anticipate doing so until we determine it is economically feasible to reactivate
our mining permits. There can be no assurance that we will be in a position to
reactivate our permit in the near future. Given the current status of our
permit, we believe acquiring a business or businesses that generate revenues
would allow the Company to attract third party investment and increase
shareholder value. Moreover, profits realized by the Company may be available
for reinvestment in our mining properties should the economics of mining become
more favorable, thus alleviating the need to seek outside funding for future
exploration plans at the Franklin Mines.
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Page 20
Results of Operations:
Results of Operations; 2000 verses 1999
The Company had no active mining or milling operations during 2000.
The Company had a net loss of $1,943,155 for the year ended December 31, 2000 as
compared to a net loss of $501,926 during the same period in 1999. The increase
of $1,441,229 was attributable to professional services rendered and the
recording of the impairment of equipment.
(a) A decline in mine expenses and remediation costs from $14,677 (1999) to
$480 (2000) resulted from a decrease in mine site activities.
(b) Depreciation expense increased from $6,677 in 1999 to $13,447 in the first
quarter of 2000 due to Management's recording of depreciation expense on
idle equipment in 2000.
(c) General and administrative expenses increased from $25,642 in 1999 to
$126,768 in 2000 an increase of $101,126. This increase resulted
principally from an increase in legal, professional and other costs
associated with the filing of a proxy statement (approximately $61,000) and
the reversal of previously accrued costs during the quarter ended March 31,
1999 (approximately $38,000).
(d) Interest expense increased from $34,599 in 1999 to $40,137 in 2000 due to
additional interest on the USM note].
Results of Operations 1999 vs. 1998.
The Company had no active mine operations during 1999.
The Company had a net loss of $501,926 for 1999 as compared to a net loss of
$1,531,317 during 1998. The decrease of $1,029,391 was attributable to:
(a) A decline in mine expenses and remediation costs from $62,560 (1998)
to $34,812 (1999) resulted from a decrease in mine site activities.
(b) Loss on sales and impairment losses on property and equipment in 1998
of $465,000 , which declined to $130,000 in 1999, a reduction of
$335,000.
(c) Depreciation expense declining from $146,355 in 1998 to $60,746 in
1999 due to a reduction in property and equipment from the recognition
of impairment losses and property disposals.
(d) General and administrative expenses decreasing from $642,592 in 1998
to $233,829 in 1999, a cost savings of $408,763. This decrease
resulted from a decline in two costs, bad debt expense and legal fees.
(e) During 1998, a bad debt expense of $350,000 was recognized
attributable to the note receivable from the sale of the Gold Hill
Mill Properties. During 1999, no bad debt expense was incurred. In
addition, legal fees declined to approximately $91,000 (1999) from
approximately $149,000 (1998), a reduction of approximately $58,000.
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Page 21
(f) Other expenses of $100,000 (1998) were attributable to an accrual for
the settlement of certain litigation. Such accrual was reversed in
1999 when the litigation was settled.
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Page 22
Item 7. Financial Reports
Page
----
Independent Auditor's Report F-1
Financial Statements:
Balance Sheets F-2 - F-3
Statements of Operations F-4
Statements of Stockholders' Equity F-5 - F-9
Statements of Cash Flows F-10 - F-11
Notes to Consolidated Financial Statements F-12 - F-24
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Page 23
INDEPENDENT AUDITORS' REPORT
To the Stockholder
WCM CAPITAL, INC.
New York, New York
We have audited the balance sheets of WCM Capital, Inc., A Exploration Stage
Company (formerly Franklin Consolidated Mining Co., Inc.) as of December 31,
2000, and the related statements of operations, changes in stockholders' equity,
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit. We did not audit the
accumulated amounts from inception through December 31, 1999, which includes an
accumulated deficit of ($16,201,967) as of December 31, 1999. Those amounts were
audited by other auditors whose report has been furnished to us and our opinion
insofar as it relates to those accumulated amounts is based solely on the report
of the other auditors. The financial statements of WCM Capital, Inc. as of
December 31, 1999 were audited by other auditors whose report on those
statements dated March 28, 2000 included an explanatory paragraph that described
the going concern uncertainty discussed in Note 1 to the financial statements.
We conducted our audit in accordance with generally accepted auditing standards.
These standards require that we plan and perform the audit to obtain reasonable
assurance as to whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, based on our audit and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of WCM Capital, Inc. as of December 31, 2000, and the
results of its operations and cash flows for the year then ended, in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company is an exploration stage enterprise whose
operations have generated recurring losses and cash flow deficiencies from
inception and, as of December 31, 2000, has a substantial working capital
deficiency. As a result, it was in default with respect to payments on several
notes and on convertible debentures and wholly dependent on outside funding to
finance current operations. Such matters raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans concerning
these matters are also described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of these
uncertainties.
POLAKOFF WEISMANN LEEN LLC
Certified Public Accountants
Livingston, New Jersey
April 13, 2001
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Page F-1
WCM CAPITAL, INC.
(An Exploration Stage Company)
BALANCE SHEETS
ASSETS
December 31,
-----------------------
2000 1999
---------- ----------
Property and equipment - at cost $6,310,550 6,784,095
Less: Accumulated depreciation and amortization 2,156,738 2,166,261
---------- ----------
Net property and equipment 4,153,812 4,617,834
---------- ----------
Other assets -
Mining reclamation Bonds 139,756 137,016
---------- ----------
Total $4,293,568 4,754,850
========== ==========
See auditors' report and notes to financial statements.
--------------------------------------------------------------------------------
Page F-2
WCM CAPITAL, INC.
(An Exploration Stage Company)
BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
-------------------------------
2000 1999
------------ ------------
Current liabilities:
Accounts payable and accrued expenses $ 1,824,285 689,049
Payroll and other taxes -- 29,960
Convertible debentures 145,000 145,000
Notes payable:
Related companies and others 297,028 218,965
U.S. Mining Inc. - related company -- 1,470,295
------------ ------------
Total current liabilities 2,266,313 2,553,269
------------ ------------
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.01 per share; 40,000,000 shares
authorized; 1,318,767 shares issued and outstanding 13,188 13,188
Additional paid-in capital 20,159,189 18,390,360
Deficit accumulated during the exploration stage (18,145,122) (16,201,967)
------------ ------------
Total stockholders' equity 2,027,255 2,201,581
------------ ------------
Total $ 4,293,568 4,754,850
============ ============
See auditors' report and notes to financial statements.
--------------------------------------------------------------------------------
Page F-3
WCM CAPITAL, INC.
(An Exploration Stage Company)
STATEMENTS OF OPERATIONS
Cumulative
December 1,
1977
(Inception)
Years Ended through
December 31, December 31,
2000 1999 2000
----------- ----------- -----------
Revenues:
Sales $ -- -- 876,082
Interest income 2,740 2,414 553,849
Other income -- -- 79,397
----------- ----------- -----------
Total 2,740 2,414 1,509,328
----------- ----------- -----------
Expenses:
Mine expenses and environmental remediation costs 47,049 34,812 3,668,159
Loss on sale/write down of mining and milling and
other property and equipment 429,983 130,000 2,224,983
Depreciation and depletion 34,039 60,746 2,395,649
General and administrative 1,195,148 233,829 7,677,354
Interest 239,676 144,953 1,526,108
Amortization of debt issuance -- -- 683,047
Equity in net loss and settlement of claims
of Joint Venture -- -- 1,059,971
Other -- (100,000) 419,179
----------- ----------- -----------
Total 1,945,895 504,340 19,654,450
----------- ----------- -----------
Net loss $(1,943,155) (501,926) (18,145,122)
=========== =========== ===========
Loss per common share (1.47) (0.38)
=========== ===========
Weighted average shares outstanding 1,318,767 1,318,767
=========== ===========
See auditors' report and notes to financial statements.
--------------------------------------------------------------------------------
Page F-4
WCM CAPITAL, INC.
(An Exploration Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY
Deficit
Accumulated
Additional During the
Common Paid-in Exploration Treasury
Shares Stock Capital Stage Stock Total
---------- ---------- ---------- ---------- ---------- ----------
Issuance of common stock:
Cash 8,268 $ 83 43,017 -- -- 43,100
Non-cash:
Related parties 49,332 493 8,757 -- -- 9,250
In exchange for shares of Gold
Developers and Producers, Inc. 58,400 584 16,850 -- -- 17,434
Net loss -- -- -- (45,584) -- (45,584)
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1977 116,000 1,160 68,624 (45,584) -- 24,200
Issuance of common stock:
Pursuant to public offering, net of
underwriting expenses of $11,026 31,368 314 283,681 -- -- 283,995
Cash 12,000 120 242,757 -- -- 242,877
Non-cash 268 2 4,998 -- -- 5,000
Net loss -- -- -- (66,495) -- (66,495)
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1978 159,636 1,596 600,060 (112,079) -- 489,577
Issuance of common stock:
Cash 12,368 124 441,126 -- -- 441,250
Non-cash:
Related parties 2,132 21 59,979 -- -- 60,000
Other 356 4 13,346 -- -- 13,350
Net loss -- -- -- (128,242) -- (128,242)
---------- ---------- ---------- ---------- ---------- ----------
Balance December 31, 1979 174,492 1,745 1,114,511 (240,321) -- 875,935
Issuance of common stock:
Cash 15,452 154 839,846 -- -- 840,000
Non-cash 3,176 32 118,968 -- -- 119,000
Net loss -- -- -- (219,021) -- (219,021)
---------- ---------- ---------- ---------- ---------- ----------
Balance December 31, 1980 193,120 1,931 2,073,325 (459,342) -- 1,615,914
Issuance of common stock:
Cash 11,206 112 820,388 -- -- 820,500
Non-cash 1,387 14 103,986 -- -- 104,000
Commission on sale of common stock -- -- (57,300) -- -- (57,300)
Net loss -- -- -- (288,105) -- (288,105)
---------- ---------- ---------- ---------- ---------- ----------
Balance December 31, 1981 205,713 $ 2,057 2,940,399 (747,447) -- 2,195,009
See auditors' report and notes to financial statements.
--------------------------------------------------------------------------------
Page F-5
WCM CAPITAL, INC.
(An Exploration Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY
Deficit
Accumulated
Additional During the
Common Paid-in Exploration Treasury
Shares Stock Capital Stage Stock Total
---------- ---------- ---------- ---------- ---------- ----------
Balance December 31, 1981 (forwarded) 205,713 $ 2,057 2,940,399 (747,447) -- 2,195,009
========== ========== ========== ========== ========== ==========
Issuance of common stock:
Cash 11,480 $ 115 764,011 -- -- 764,126
Non-cash 2,160 22 161,978 -- -- 162,000
Commission on sale of common stock -- -- (56,075) -- -- (56,075)
Net loss -- -- -- (287,291) -- (287,291)
---------- ---------- ---------- ---------- ---------- ----------
Balance December 31, 1982 219,353 2,194 3,810,313 (1,034,738) -- 2,777,769
Issuance of common stock:
Cash 16,975 170 1,189,380 -- -- 1,189,550
Non-cash 944 9 70,825 -- -- 70,834
Exercise of stock options:
Related parties 3,567 35 267,465 -- -- 267,500
Others 52 1 3,999 -- -- 4,000
Commission on sale of common stock -- -- (124,830) -- -- (124,830)
Net loss -- -- -- (749,166) -- (749,166)
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1983 240,891 2,409 5,217,152 (1,783,904) -- 3,435,657
Issuance of common stock:
Cash 16,023 160 1,151,540 -- -- 1,151,700
Non-cash 367 3 27,497 -- -- 27,500
Exercise of stock options by related parties 2,667 27 199,973 -- -- 200,000
Commission on sale of common stock -- -- (90,950) -- -- (90,950)
Net loss -- -- -- (301,894) -- (301,894)
---------- ---------- ---------- ---------- ---------- ----------
Balance December 31, 1984 259,948 2,599 6,505,212 (2,085,798) -- 4,422,013
Issuance of common stock:
Cash 5,618 56 300,023 -- -- 300,079
Non-Cash 133 2 7,498 -- -- 7,500
Exercise of stock options:
Related parties 2,667 27 149,973 -- -- 150,000
Others 12 -- 750 -- -- 750
Commission on sale of common stock -- -- (3,462) -- -- (3,462)
Net loss -- -- -- (133,929) -- (133,929)
---------- ---------- ---------- ---------- ---------- ----------
Balance December 31, 1985 268,378 $ 2,684 6,959,994 (2,219,727) -- 4,742,951
See auditors' report and notes to financial statements.
--------------------------------------------------------------------------------
Page F-6
WCM CAPITAL, INC.
(An Exploration Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY
Deficit
Accumulated
Additional During the
Common Paid-in Exploration Treasury
Shares Stock Capital Stage Stock Total
---------- ---------- ---------- ---------- ---------- ----------
Balance December 31, 1985 (forwarded) 268,378 $ 2,684 6,959,994 (2,219,727) -- 4,742,951
========== ========== ========== ========== ========== ==========
Issuance of common stock:
Cash 7,587 $ 76 300,424 -- -- 300,500
Non-cash:
Related parties 2,133 21 79,979 -- -- 80,000
Others 1,800 18 53,982 -- -- 54,000
Net loss -- -- -- (227,788) -- (227,788)
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1986 279,898 2,799 7,394,379 (2,447,515) -- 4,949,663
Issuance of common stock:
Cash 34,725 347 1,286,954 -- -- 1,287,301
Non-cash:
Related parties 2,695 27 70,873 -- -- 70,900
Other 500 5 37,245 -- -- 37,250
Commission on sale of common stock -- -- (110,243) -- -- (110,243)
Net loss -- -- -- (730,116) -- (730,116)
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1987 317,818 3,178 8,679,208 (3,177,631) -- 5,504,755
Issuance of common stock:
Non-cash - related parties 2,666 27 49,973 -- -- 50,000
Purchase of 666 shares of treasury stock -
at cost -- -- -- -- (12,500) (12,500)
Net loss -- -- -- (386,704) -- (386,704)
---------- ---------- ---------- ---------- ---------- ----------
Balance December 31, 1988 320,484 3,205 8,729,181 (3,564,335) (12,500) 5,155,551
Issuance of common stock:
Cash 9,040 90 110,410 -- -- 110,500
Non-cash:
Related parties 2,800 38 33,828 -- -- 33,866
Other 3,782 28 31,472 -- -- 31,500
Private placement:
Cash 30,333 303 22,447 -- -- 22,750
Debt issuance expense -- -- 455,000 -- -- 455,000
Conversion of debentures 14,000 140 104,860 -- -- 105,000
Exercise of stock options 4,000 40 44,960 -- -- 45,000
Compensation resulting from stock options
granted -- -- 39,000 -- -- 39,000
Commission on sale of common stock -- -- (1,500) -- -- (1,500)
Net loss -- -- -- (1,279,804) -- (1,279,804)
---------- ---------- ---------- ---------- ---------- ----------
Balance December 31, 1989 384,439 $ 3,844 9,569,658 (4,844,139) (12,500) 4,716,863
See auditors' report and notes to financial statements.
--------------------------------------------------------------------------------
Page F-7
WCM CAPITAL, INC.
(An Exploration Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY
Deficit
Accumulated
Additional During the
Common Paid-in Exploration Treasury
Shares Stock Capital Stage Stock Total
----------- ----------- ----------- ----------- ----------- -----------
Balance December 31, 1989 (forwarded) 384,439 $ 3,844 9,569,658 (4,844,139) (12,500) 4,716,863
=========== =========== =========== =========== =========== ===========
Sale of underwriter's stock warrants -- $ -- 100 -- -- 100
Issuance of common stock:
Cash 4,467 45 45,180 -- -- 45,225
Non-cash - others 531 5 5,973 -- -- 5,978
Conversion of debentures 2,133 22 31,978 -- -- 32,000
Net loss -- -- -- (1,171,962) -- (1,171,962)
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1990 391,570 3,916 9,652,889 (6,016,101) (12,500) 3,628,204
Issuance of common stock:
Cash 23,995 240 96,691 -- -- 96,931
Cash - related parties 24,000 240 89,760 -- -- 90,000
Non-cash - others 15,783 158 59,029 -- -- 59,187
Conversion of debentures 49,747 498 625,502 -- -- 626,000
Exercise of stock options 3,333 33 12,467 -- -- 12,500
Conversion of notes payable 3,333 33 14,967 -- -- 15,000
Net loss -- -- -- (764,926) -- (764,926)
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1991 511,761 5,118 10,551,305 (6,781,027) (12,500) 3,762,896
Issuance of common stock:
Cash 26,959 269 169,339 -- -- 169,608
Cash - related parties 8,400 84 48,916 -- -- 49,000
Non-cash:
Others 23,062 231 365,827 -- -- 366,058
Related parties 161 2 604 -- -- 606
Exercise of options by related parties 27,333 273 102,227 -- -- 102,500
Conversion of debentures 7,200 72 161,928 -- -- 162,000
Commission on sale of stock -
related parties -- -- (7,123) -- -- (7,123)
Net loss -- -- -- (1,343,959) -- (1,343,959)
----------- ----------- ----------- ----------- ----------- -----------
Balance December 31, 1992 604,876 6,049 11,393,023 (8,124,986) (12,500) 3,261,586
Issuance of common stock:
Cash 11,645 116 133,848 -- -- 133,964
Cash - related parties 10,360 104 77,596 -- -- 77,700
Non-cash:
Others 2,000 20 14,980 -- -- 15,000
Settlement of litigation 13,333 133 99,867 -- -- 100,000
Exercise of options by related parties 2,667 27 9,973 -- -- 10,000
Conversion of debentures 1,867 19 34,981 -- -- 35,000
Conversion of loan 1,333 13 9,987 -- -- 10,000
Net loss -- -- -- (797,619) -- (797,619)
----------- ----------- ----------- ----------- ----------- -----------
Balance December 31, 1993 648,081 $ 6,481 11,774,255 (8,922,605) (12,500) 2,845,631
See auditors' report and notes to financial statements.
--------------------------------------------------------------------------------
Page F-8
WCM CAPITAL, INC.
(An Exploration Stage Company)
STATEMENTS OF STOCKHOLDERS' EQUITY
Deficit
Accumulated
Additional During the
Common Paid-in Exploration Treasury
Shares Stock Capital Stage Stock Total
----------- ----------- ----------- ----------- ----------- -----------
Balance December 31, 1993 (forwarded) 648,081 $ 6,481 11,774,255 (8,922,605) (12,500) 2,845,631
=========== =========== =========== =========== =========== ===========
Retirement of treasury stock (666) $ (7) (12,493) -- 12,500 --
Net loss -- -- -- (381,596) -- (381,596)
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1994 647,415 6,474 11,761,762 (9,304,201) -- 2,464,035
Issuance of common stock:
Settlement of claims by joint venture partner 80,000 800 935,200 -- -- 936,000
Repayments:
Loan from joint venture partner 42,667 427 498,773 -- -- 499,200
Long-term loans from related parties
and accrued interest 115,730 1,157 675,868 -- -- 677,025
Exchange of shares for profit participation
interests 36,000 360 (360) -- -- --
Net loss -- -- -- (1,641,944) -- (1,641,944)
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1995 921,812 9,218 13,871,243 (10,946,145) -- 2,934,316
Issuance of common stock:
Cash 23,379 234 297,366 -- -- 297,600
Services and interest 49,547 495 561,942 -- -- 562,437
Conversion of convertible notes 57,263 573 557,747 -- -- 558,320
Repayments:
Loan from joint venture partner 30,880 309 361,566 -- -- 361,875
Long-term loans from related party 124,892 1,249 1,462,332 -- -- 1,463,581
Net loss -- -- -- (1,314,104) -- (1,314,104)
----------- ----------- ----------- ----------- ----------- -----------
Balance December 31, 1996 1,207,773 12,078 17,112,196 (12,260,249) -- 4,864,025
Issuance of common stock:
Extension of lease rights 1,386 14 12,986 -- -- 13,000
Conversions:
Note payable 102,941 1,029 598,971 -- -- 600,000
Debt 6,667 67 50,433 -- -- 50,500
Acquisition of joint venture -- -- 615,774 -- -- 615,774
Net loss -- -- -- (1,908,475) -- (1,908,475)
----------- ----------- ----------- ----------- ----------- -----------
Balance December 31, 1997 1,318,767 13,188 18,390,360 (14,168,724) -- 4,234,824
Net loss -- -- -- (1,531,317) -- (1,531,317)
----------- ----------- ----------- ----------- ----------- -----------
Balance December 31, 1998 1,318,767 13,188 18,390,360 (15,700,041) -- 2,703,507
Net loss -- -- -- (501,926) -- (501,926)
----------- ----------- ----------- ----------- ----------- -----------
Balance December 31, 1999 1,318,767 13,188 18,390,360 (16,201,967) -- 2,201,581
Donated loan from related party -- -- 1,768,829 -- -- 1,768,829
Net loss -- -- -- (1,943,155) -- (1,943,155)
----------- ----------- ----------- ----------- ----------- -----------
Balance December 31, 2000 1,318,767 $ 13,188 20,159,189 (18,145,122) -- 2,027,255
=========== =========== =========== =========== =========== ===========
See auditors' report and notes to financial statements.
--------------------------------------------------------------------------------
Page F-9
WCM CAPITAL, INC.
(An Exploration Stage Company)
STATEMENTS OF CASH FLOWS
Cumulative
December 1,
1977
(Inception)
Years Ended through
December 31, December 31,
2000 1999 2000
----------- ----------- -----------
Cash flows from operating activities:
Net loss $(1,943,155) (501,926) (18,145,122)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and depletion 34,039 60,746 2,395,649
Depreciation impairment loss (43,562) -- (43,562)
Provision for uncollectible account -- -- 350,000
Write down of mining and milling and the other
property and equipment 473,545 130,000 2,003,545
Amortization of debt issuance expense -- -- 683,047
Loss on sale of equipment -- -- 265,000
Value of common stock issued for:
Services and interest -- -- 1,934,894
Settlement of:
Litigation -- -- 100,000
Claims by joint venture partner -- -- 936,000
Compensation resulting from stock options granted -- -- 311,900
Value of stock options granted for services -- -- 112,500
Equity in net (income) loss of joint venture -- -- 123,971
Other -- -- (7,123)
Changes in operating assets and liabilities:
Interest accrued on mining reclamation bonds (2,740) (2,414) (14,756)
Accounts payable and accrued expenses 1,135,236 34,885 2,086,501
Payroll and other taxes (29,960) -- (29,960)
----------- ----------- -----------
Net cash used in operating activities (376,597) (278,709) (6,937,516)
----------- ----------- -----------
Cash flows from investing activities:
Purchases and additions to mining, milling and other
property and equipment -- -- (5,120,354)
Purchases of mining reclamation bonds, net -- -- (125,000)
Deferred mine development costs and other expenses -- -- (255,319)
----------- ----------- -----------
Net cash used in investing activities -- -- (5,500,673)
----------- ----------- -----------
See auditors' report and notes to financial statements.
--------------------------------------------------------------------------------
Page F-10
WCM CAPITAL, INC.
(An Exploration Stage Company)
STATEMENTS OF CASH FLOWS
Cumulative
December 1,
1977
(Inception)
Years Ended through
December 31, December 31,
2000 1999 2000
----------- ----------- -----------
Cash flows from financing activities:
Issuance of:
Common stock -- -- 8,758,257
Underwriter's stock warrants -- -- 100
Commissions on sales of common stock -- -- (381,860)
Purchases of treasury stock -- -- (12,500)
Payments:
Deferred underwriting costs -- -- (63,814)
Debt issuance expenses -- -- (164,233)
Repayments:
Other notes and loan payables -- -- (120,000)
Loans from affiliate -- -- (48,661)
Proceeds:
Exercise of stock options -- -- 306,300
Advances from joint venture partner -- -- 526,288
Other notes and loans payable (1,392,232) 278,709 489,546
Donated loan 1,768,829 -- 1,768,829
Loans from affiliate -- -- 55,954
Issuance of convertible debentures and notes -- -- 1,505,000
Advances to joint venture partner -- -- (181,017)
----------- ----------- -----------
Net cash provided by financing activities 376,597 278,709 12,438,189
----------- ----------- -----------
Increase (decrease) in cash -- -- --
Cash Beginning -- -- --
Cash Ending -- -- --
=========== =========== ===========
Supplemental disclosure of cash flow data -
Interest paid -- -- 299,868
=========== =========== ===========
See auditors' report and notes to financial statements.
--------------------------------------------------------------------------------
Page F-11
WCM CAPITAL, INC.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
NOTE 1 - BASIS OF PRESENTATION/GOING CONCERN UNCERTAINTY:
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. However, the Company has had
recurring losses and cash flow deficiencies since inception. As of December
31, 2000 and 1999, the Company had no cash balances, an accumulated deficit
of $18,145,000 and $16,200,000, respectively and current liabilities of
$2,266,300 and $2,553,300, respectively, and a working capital deficiency
of $2,266,300 and $2,553,300, respectively. The Company was in default on
the payment of the principal balances and accrued interest on certain notes
and debentures (Notes 5, 6 and 7). In addition to the payable of its
current liabilities, management estimates that the Company will incur
general, administrative, and other costs and expenditures, exclusive of any
costs and expenditures related to any mining and milling operations or
environmental matters (Note 8B), at a rate of approximately $25,000 per
month during the year 2001 as based upon the year 2000 actual costs. Such
matters raise substantial doubt as to the Company's ability to continue as
a going concern.
U.S. Mining Co. (USM), has verbally pledged to provide financing to the
Company on an as needed basis through December 31, 2001. The funds will
cover general, administrative and other costs. Additional funds will be
needed to support the extraction and milling processes once underway as
well as to upgrade the processing facilities to allow for an increase in
ore processing capacity.
There can be no assurance that the Company will have adequate funds
available to repay the funds advanced by USM. In the event that the Company
defaults on its obligations, USM may file suit for recovery of advances to
the Company. Such actions would have a material adverse effect on the
future operations of the Company.
Substantially all of the $4,153,800 of plant and equipment included in the
accompanying balance sheet as of December 31, 2000, is related to
exploration properties. The ultimate realization of the Company's
investment in such properties and equipment is dependent upon the success
of future property sales, the existence of economically recoverable
reserves, the ability of the Company to obtain financing or make other
arrangements for development, and future profitable production.
--------------------------------------------------------------------------------
Page F-12
WCM CAPITAL, INC.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization:
WCM Capital, Inc. (formerly Franklin Consolidated Mining Co., Inc.)
(Company), incorporated on December 1, 1976 under the laws of the State of
Delaware, was formed to engage in the exploration, development and mining
of precious and non-ferrous metals, including gold, silver, lead, copper
and zinc. The Company owns or has an interest in a number of precious and
non-ferrous metal properties. The Company's principal mining properties are
(i) the Franklin Mines, located near Idaho Springs in Clear Creek County,
Colorado, for which the Company acquired the exclusive right to explore,
develop, mine, and extract all minerals located in approximately 51 mining
claims of which 28 are patented (Franklin Mines) and (ii) the Franklin
Mill, a crushing and flotation mill which is located on the site of the
Franklin Mines (Franklin Mill). The Company is an exploration stage
enterprise as it did not generate any significant revenues through December
31, 2000.
During October 1998, the Company's shareholders approved an amendment to
its certificate of incorporation changing the name of the Company to WCM
Capital, Inc.
Accounting Estimates:
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements, as well as the
reported amounts of revenues and expenses during the reporting period.
While actual results could differ from those estimates, management does not
expect such variances, if any, to have a material effect on the financial
statements.
--------------------------------------------------------------------------------
Page F-13
WCM CAPITAL, INC.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
Mining, Milling and Other Property and Equipment:
Recorded at costs incurred to acquire, explore, improve and develop mining
and milling properties capitalized and amortized in relation to the
production of estimated reserves. General exploration costs and costs to
maintain the mineral rights and leases are expensed as incurred. Management
periodically reviews the recoverability of the capitalized mineral
properties and mining equipment. Management takes into consideration
various information including, but not limited to, historical production
records taken from previous mine operations, results of exploration
activities conducted to date, estimated future prices and reports and
opinions of outside geologists, mine engineers, and consultants. When it is
determined that a project or property will be abandoned or its carrying
value has been impaired, a provision is made for any expected loss on the
project or property.
Post-closure reclamation and site restoration costs are estimated based
upon environmental and regulatory requirements and accrued over the life of
the mine using the units-of-production method. Current expenditures
relating to ongoing environmental and reclamation programs are expenses as
incurred.
Depreciation of equipment is computed using the straight-line method over
the estimated useful lives of the related assets.
Impairment of Long-Lived Assets:
The company has adopted the provisions of FASB Statement of Financial
Accounting Standards No. 121, "Accounting of the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" (SFAS 121). Under SFAS
121, impairment losses on long-lived assets are recognized when events or
changes in circumstances indicate that the undiscounted cash flows
estimated to be generated by such assets are less than their carrying value
and, accordingly, all or a portion of such carrying value may not be
recoverable. Impairment losses then are measured by comparing the fair
value of assets to their carrying amounts. The Company determined that due
to certain restrictions associated with milling operations, sold the Gold
Hill Mill Properties on June 5, 1998 in exchange for property and equipment
with a market value of $725,000 and a 14% note receivable of $350,000. As
of December 31, 1998 the $350,000 note was reduced to zero and a $200,000
impairment loss was
--------------------------------------------------------------------------------
Page F-14
WCM CAPITAL, INC.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
Impairment of Long-Lived Assets (continued):
taken against the $725,000 of equipment acquired. Additional impairment
losses of $430,000 and $130,000 in 2000 and 1999 respectively were taken
against the Company's mining, milling and other property and equipment.
Revenue Recognition:
Revenues, if any, from the possible sales of mineral concentrates will be
recognized by the Company only upon receipt of final settlement funds from
the smelter.
Environmental Remediation Costs:
Accrued based on estimates of known environmental remediation exposures.
Ongoing environmental compliance costs, including maintenance and
monitoring costs are expensed as incurred.
Income Taxes:
Deferred income taxes are to be provided on transactions, which are
reported in the financial statements in different periods than for income
tax purposes. The Company utilized Financial Accounting Board Statement No.
109, "Accounting for Income Taxes," ("SFAS 109"). SFAS 109 requires
recognition of deferred tax liabilities and assets for expected future tax
consequences of events that have been included in the financial statements
or tax returns. Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statements and tax
basis of assets and liabilities using enacted tax rates in effect for the
year in which the difference is expected to reverse. Under SFAS 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized (Note 9).
--------------------------------------------------------------------------------
Page F-15
WCM CAPITAL, INC.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued):
Loss Per Common Share:
The Company has adopted SFAS 128 "Earnings Per Share" ("SFAS 128"), which
requires the presentation of "basic" and "diluted" earnings per share on
the face of the income statement. Loss per common share is computed by
dividing the net loss by the weighted average number of common shares
outstanding during each period. Common stock equivalents have been excluded
from the computations since the results would be anti-dilutive. Loses per
share have been restated for prior periods to give effect to the reverse
stock splits during 1999 (Note 10).
Fair Value of Financial Investments:
The carrying amount of the Company's borrowings approximate fair value.
Statement of Comprehensive Income:
SFAS 130 "Reporting Comprehensive Income" prescribes standards for
reporting comprehensive income and its components. Since the Company
currently does not have any items of comprehensive income, a statement of
comprehensive income is not required.
NOTE 3 - ACQUISITIONS OF MINING AND MILLING PROPERTIES:
Joint Venture
On December 26, 1976, the Company acquired Gold Developers and Producers
Incorporated, a Colorado corporation which, prior to the acquisition,
leased 28 patented mining claims from Audrey and David Hayden and Dorothy
Kennec pursuant to a mining lease and option to purchase, dated November
12, 1976 (hereinafter referred to as "Hayden" and "Kennec"). In 1981, the
Company commenced a rehabilitation program to extend and rehabilitate the
shafts and tunnels in place at the Franklin Mines, install the Franklin
Mill, and search for and delineate a commercial ore body. In 1983, the
Company completed the Franklin Mill.
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Page F-16
WCM CAPITAL, INC.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
NOTE 3 - ACQUISITIONS OF MINING AND MILLING PROPERTIES (continued):
Gold Hill Mill:
On July 3, 1996, the Company acquired the Gold Hill Mill from a wholly
subsidiary of Gems, in exchange for an 8% mortgage note with an initial
principal balance of $2,500,000. The Gold Hill Mill is a fully permitted
milling facility located in Boulder, Colorado.
At December 31, 1997, the Company reduced by $1,200,000 the carrying value
of certain of the Gold Hill Mill assets to $1,340,000, which approximates
management's estimate of fair value. All the Gold Hill assets were sold
during 1998 (see Note 2).
NOTE 4 - MINING, MILLING AND OTHER PROPERTY AND EQUIPMENT:
Consist of the following at December 31:
2000 1999
---------- ---------
Machinery and equipment $1,240,675 1,617,220
Mine and mill improvements (a) 4,974,065 5,071,065
Furniture and fixtures 11,714 11,714
Automotive equipment 84,096 84,096
---------- ---------
6,310,550 6,784,095
Less: accumulated depreciation and
depletion 2,156,738 2,166,261
---------- ---------
$4,153,812 4,617,834
========== =========
(a) The improvements and equipment were written down $430,000 and $130,000
in 2000 and 1999 (Note 2) based upon the independent appraisal of a
qualified equipment appraiser.
During the years ended December 31, 2000 and 1999, the Company expended
$47,049 and $34,812, respectively, on environmental remediation costs and
mine expense.
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Page F-17
WCM CAPITAL, INC.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
NOTE 5 - NOTES PAYABLE - RELATED PARTY AND OTHERS:
Due to related party and others consisting of the following at December 31,
2000 and 1999:
12% unsecured demand notes due to the
Company's former President and his
affiliated entity $142,718
Secured promissory note (a) 60,000
Unsecured promissory notes (b) 94,310
--------
$297,028
========
(a) The outstanding principal balance of the note, payable on July 18,
1996 was defaulted. Collateralized by a subordinated security interest
in the Company's mining reclamation bond. Interest is payable based on
the rate of interest applicable to the mining reclamation bond (8% at
December 31, 2000).
(b) This principal amount represents four unsecured promissory notes. The
Company assumed these obligations on Novembers 25, 1997, as part of
the acquisition from USM. These notes were in default when assumed by
the Company, and remain in default as of December 31, 2000, interest
accrued at 17%.
Accrued interest on the above notes at December 31, 2000 and 1999
aggregated approximately $45,744 and $27,575, respectively.
NOTE 6 - CONVERTIBLE DEBENTURES AND OTHER CONVERTIBLE DEBT:
At December 31, 2000 and 1999 consists of:
12.25% convertible debenture maturing
December 31, 1994 $145,000
As of December 31, 2000 and 1999, the Company was in default with respect
to the principal balance of the debenture and accrued interest of
approximately $102,000 and $84,000, respectively. As a result of its
default, the Company may be subject to legal proceedings by the Transfer
Agent/Trustee under the Indenture Agreement or from debenture holders
seeking immediate repayment of principal plus interest and other costs.
Management cannot assure that funds will be available for the required
payments or the effect will be of any actions brought by or on behalf of
the debenture holders (Note 8c).
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Page F-18
WCM CAPITAL, INC.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
NOTE 6 - CONVERTIBLE DEBENTURES AND OTHER CONVERTIBLE DEBT (continued):
In September 1996, the Company acquired a 20% interest in Newmineco by
issuing a 9.5% note payable of $600,000 to Gems, convertible to common
stock at the Company's option on or after January 1, 1997. On February 10,
1997, the Company notified the assignees that it elected to convert the
principal balance into 102,564 shares of common stock, as adjusted based on
the conversation rate of $5.85, per share as adjusted. As a result of
problems concerning permitting and various other issued related to the
Mogul Mines, the purchase price was reduced to $150,000 on December 31,
1996 and to zero on December 31, 1997 (Note 3). The $450,000 (1996) and
$150,000 (1997) reductions in the purchase price were effectuated through
an equivalent reduction in the principal balance of an 8% mortgage notes
payable to an affiliate of Gems by the Company.
NOTE 7 - NOTE PAYABLE - RELATED PARTY:
The Company had an 8% promissory note balance of $955,756, at December 31,
1997, representing advances to the Company by an affiliated entity, POS
Financial, Inc. (POS), a New Jersey corporation and obligations assumed in
connection with the contributions of Joint Venture interest (Note 3). The
note was payable on May 4, 1998, and is secured by all the Company's mining
claims and mining properties. The note is subject to successive 30-day
extensions throughout 1998 and 1999 upon the mutual agreement of the maker
and lender for no additional consideration. On March 5, 1998, POS assigned
this note to USM. Both POS and USM are considered related parties because
they are owned by a director of WCM and can exert significant influence
over the Company. Additional amounts were loaned to the Company by USM
during 1999 and 2000. The balance due on the note at December 31, 2000
aggregated $1,764,829 plus accrued interest of $328,040. The balance due on
the note at December 31, 1999 aggregated $1,470,295 plus accrued interest
of $198,745.
This note was donated to the Company as of December 31, 2000 and is
included as additional paid in capital. The accrued interest remains a
liability of the Company.
All royalty payments made under the Hayden/Kennec Leases were expenses as
incurred and included in mine expenses and environmental remediation costs
in the accompanying Statements of Operations.
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Page F-19
WCM CAPITAL, INC.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
NOTE 8 - COMMITMENTS AND CONTINGENCIES:
On November 13, 1997, Hayden entered into an agreement to sell the Hayden
interests to USM for a purchase price of $75,000 (the "Hayden-USM Purchase
Agreement"). The purchase price was evidenced by a note, due on February 2,
1998. Payment on the note has been extended until USM receives a report of
clear title.
Upon the execution of the Hayden-USM Purchase Agreement, USM agreed to give
Hayden mineral rights to some land parcels and will receive royalties whish
will be expenses as incurred. As of December 31, 2000 USM had yet to
received clear title but continued to make Purchase Agreement extension
payments.
Kennec receives on certain parcels of acreage a 50/50 split on land and
mineral rights.
All royalty payments made under the Hayden and Kennec agreements were
expenses as incurred in mine expenses and environmental remediation costs
in the accompanying Statement of Operations.
The Company pays a monthly rental of $3,500 (on a month to month basis) for
the office space, secretarial and other services provided to the Company
pursuant to an oral agreement with a non-affiliate. Rent expense was
$39,700 and $41,000 in 2000 and 1999, respectively. As of February 28,
2001, the Company has ceased renting office space.
--------------------------------------------------------------------------------
Page F-20
WCM CAPITAL, INC.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
NOTE 8 - COMMITMENTS AND CONTINGENCIES (continued):
(b) Environmental Matters:
During 1999, inspections of the Franklin Mining properties revealed that
certain drainage problems and substandard linings at the tailings disposal
areas created potential hazards and that protection measures are required.
The Company received a letter dated March 9, 2000 from the Colorado
Division of Minerals and Geology (the "DMG") which sets forth the measures
which must be taken by the Company to bring the site into compliance with
groundwater regulations and to stabilize the tailings pond and site. In the
event the Company completes all of the required actions by May 30, 2001, a
Temporary Cessation order will be granted by DMG. In the event a Temporary
Cessation is granted, no further reclamation work or mining work would be
required for the duration of the Temporary Cessation, beyond basic
maintenance and reclamation required to keep the site from further
deterioration.
(c) Litigation:
The Company is involved in various litigation as explained below:
(i) The Company and others were defendants in an action related to a
dispute over fees for engineering consulting services. The parties
settled this matter in September 1999 and the litigation was
discontinued.
(ii) In September 1997, certain of the Company's 12.25% Convertible
Debenture holders (see Note 6) instituted an action against the
Company for payment of approximately $42,500 principal amount of its
12.25% Convertible Debentures plus accrued and unpaid interest
totaling approximately $13,000 and other costs and expenses related
thereto. The Company has answered the aforesaid complaint. A default
judgment was entered against the Company in the amount of $42,500 plus
interest, costs and disbursements. The Company and USM have been
negotiating with the debenture holders but to this point no settlement
agreement has been reached. The continued default of the Company could
result in the Company being subject to additional legal proceedings.
In addition, there is no assurance that funds will be available to
cure the default or reach an acceptable settlement.
--------------------------------------------------------------------------------
Page F-21
WCM CAPITAL, INC.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
NOTE 8 - COMMITMENTS AND CONTINGENCIES (continued):
(c) Litigation (continued):
(iii) On or about May 14, 1998, Redstone Securities Inc. ("Redstone")
commenced an action against the Company in connection with an
Investment Banking Agreement dated August 28, 1996, between Redstone
and the Company. On or about July 31, 1998, the Company answered the
complaint and filed a cross complaint against Redstone. In September
1999, the matter was settled whereby the Company agreed to lift the
stop transfer order on the shares held by Redstone to allow Redstone
the ability to sell those shares to an unqualified third party.
(d) NASDAQ Notification:
During 1998 and 1999, the Company received notification letters from
NASDAQ informing them that the Company's common stock was not in
compliance with the NASDAQ small-cap market price requirement of $1.00,
which became effective on February 23, 1998.
In order to mitigate the minimum bid price requirement the Company
effectuated reverse stock splits during 1998 and 1999 (Note 10). After
each reverse split the Company's stock price remained above the $1.00
minimum bid price requirement for the necessary ten-day period.
While the Company is currently in compliance with the minimum bid price
requirement, there can be no assurance in the future that it will be able
to maintain such compliance.
--------------------------------------------------------------------------------
Page F-22
WCM CAPITAL, INC.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
NOTE 9 - INCOME TAXES:
As of December 31, 2000, the Company had federal net operating loss
carryforwards of approximately $11,836,000 available to reduce future
federal taxable income, which, if not used, will expire at various dates
through December 31, 2020. Changes in the ownership of the Company may
subject these loss carryforwards to substantial limitations.
The Company has offset the deferred tax attributable to the potential
benefits from such net operating loss carryforwards and the reduction in
carrying value by an equivalent valuation allowance due to the
uncertainties related to the extent and timing of its future taxable
income. There are no other material temporary differences.
Deferred Valuation
Tax Asset Allowance
---------- ---------
Balance at December 31, 1998 $4,509,000 4,509,000
Increase in Federal net operating loss,
year ended December 31, 1999 210,000 210,000
---------- ---------
Balance at December 31, 1999 4,719,000 4,719,000
Increase in Federal net operating loss,
year ended December 31, 2000 1,384,000 1,384,000
---------- ---------
Balance at December 31, 2000 $6,103,000 6,103,000
========== =========
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Page F-23
WCM CAPITAL, INC.
(An Exploration Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
NOTE 10 - STOCKHOLDERS' EQUITY:
(a) Reverse Stock Splits:
On May 26, 1998, the Company effectuated a twenty-five-for-one reverse
stock split. On December 20, 1999, the Company effectuated a
three-for-one reverse stock split. The accompanying financials give
retroactive effect to these reverse stock splits.
(b) Common Stock Reserved for Issuance:
At December 31, 2000 and 1999, there were 3,867 shares of common stock
reserved for issuance upon the exercise of the 12.25% $145,000
convertible debentures (see Note 6).
(c) Issuance of Common Stock
From December 1, 1997 (inception) through December 31, 2000, the
Company issued common stock for:
Cash, including net proceeds of $283,995
from Public offering 355,648 $ 8,758,256
Exercise of stock options 46,298 792,250
Commissions of sales of common stock -- (451,483)
Purchase and retirement of treasury stock (666) (12,500)
Non-cash, other than related parties:
Services and property 165,582 1,673,394
Conversion of debentures and notes payable 246,107 2,648,820
Stock options and stock warrants granted -- 39,100
Settlement of litigation and other 13,710 100,000
Non-cash, related parties:
Services and property 97,919 918,030
Settlement of claims by related parties 80,000 936,000
Donated related party loans -- 1,768,829
Repayment of related party loans 314,169 3,001,681
--------- ------------
1,318,767 $ 20,172,377
========= ============
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Page F-24
ITEM 8. Changes In And Disagreements With Accountants On Accounting And
Financial Disclosure
On March 16, 2000, the Company notified Lazar Levine & Felix ("LLF") that it
would no longer serve as its independent auditors. The decision to dismiss LLF
was approved by the Board of Directors of the Company.
During the two most recent fiscal years of the Company, none of the reports of
LLF on the financial statements of the Company contained an adverse opinion or a
disclaimer of opinion or was qualified or modified as to audit scope, or
accounting principles; however, LLF has qualified or modified its reports on the
financial statements of the Company as a going concern. During the two most
recent fiscal years and any subsequent interim period preceding the dismissal of
LLF, there were no disagreements between the Company and LLF concerning
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure which would have caused LLF to make a reference to the
subject matter thereof in its report had such disagreement not been resolved to
the satisfaction of LLF.
The Company retained Ehrenkrantz Sterling & Co. Certified Public Accountants as
its independent auditors for fiscal year 1999.
On October 19, 2000, the Company notified Ehrenkrantz, Sterling & Co. Certified
Public Accountants ("ESC") that it would no longer serve as its independent
auditors. The decision to dismiss ESC was approved by the Board of Directors of
the Company.
During the two most recent fiscal years of the Company, none of the reports of
ESC on the financial statements of the Company contained an adverse opinion or a
disclaimer of opinion or was qualified or modified as to audit scope, or
accounting principles; however, ESC has qualified or modified its reports on the
financial statements of the Company as a going concern. During the two most
recent fiscal years and any subsequent interim period preceding the dismissal of
ESC, there were no disagreements between the Company and ESC concerning
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure which would have caused ESC to make a reference to the
subject matter thereof in its report had such disagreement not been resolved to
the satisfaction of ESC.
The Company retained JH Cohen & Company as its independent auditors for fiscal
year 2000. JH Cohen was the independent auditor for the Company through fiscal
year 1997
On April 9, 2000, the Company notified JH Cohen & Company. Certified Public
Accountants that it would no longer serve as its independent auditors. The
decision to dismiss JH Cohen & Company was approved by the Board of Directors of
the Company. JH Cohen was dismissed prior to issuing any reports on behalf of
the Company. The Company retained Polakoff, Weismann, Leen, LLC as its
independent auditors for fiscal year 2000.
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Page 24
PART III
Item 9. Directors, Executive Officers, Promoters and Control Person; Compliance
with Section 16(a) of the Exchange Act
Name Age Position
---- --- --------
Robert Waligunda 55 Current President and Treasurer
Richard Brannon 52 Vice-President-Secretary
George E. Otten 75 Vice President
William C. Martucci 58 Director
William Wishinsky 36 Director
Casey Myhre 35 Director
Vincent A. DeMartino 37 Director
ROBERT L. WALIGUNDA. Mr. Waligunda has served as President and Treasurer of the
Company since October 1998. Mr. Waligunda has served as a director of the
Company from 1985 and as Secretary of the Company from August 1995 to October
1998. From 1965 to the present, Mr. Waligunda has served as founder, President,
and principal stockholder of Sky Promotions, Inc., a Pittstown, New Jersey
marketing and management company involved in sales, advertising and marketing of
hot air balloons and inflatable products. He is the founder and director of
International Professional Balloon Pilots Racing Association, a member of the
advisory board of Aerostar International, Inc., the world's oldest and largest
balloon manufacturing company, and a member of the National Aeronautic
Association, the Experimental Aircraft Association, and the Airplane Owner and
Pilots Association. Mr. Waligunda received a Masters of Science degree in
guidance and psychological services from Springfield College in 1968.
RICHARD BRANNON Mr. Brannon has served as the Vice President since February 1996
and Secretary of the Company since October 1998. Mr. Brannon is a California
licensed real estate broker and 100% owner of A Reel Mortgage, Inc., a mortgage
and loan servicing company organized in 1991. Mr. Brannon is a founding director
of the California Trustee Mortgage Broker Association, a not-for-profit
corporation.
GEORGE E. OTTEN Mr. Otten has served as Vice President of the Company since
October 1998. Mr. Otten was the first president of the Company from 1976 through
1985 and is the owner and operator of the Bates Hunter Mine under the name
"Central City Consolidated Mining Company" since 1985. Since 1997, Mr. Otten is
the president, director, and General Operating officer of all operations of
Hunter Gold Mining, Inc. Central City Colorado. Mr. Otten holds a degree in
Business Administration from Adams State College, Alamosa, Colorado.
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Page 25
WILLIAM C. MARTUCCI From 1974 to the present, Mr. Martucci has served as
president and chairman of United Grocers Clearing House, Inc., a privately held
company he founded to serve the coupon redemption, fulfillment and promotional
needs of manufacturers and retailers. In 1997 Mr. Martucci founded and is the
sole director, officer and shareholder of Shoppers On Line that portal and web
page for business-to-business and business to consumer products and services.
Additionally, Mr. Martucci is the sole shareholder; director and president of
U.S. Mining, Inc. ("USM") Mr. Martucci received a Bachelor of Science in
Philosophy from Florida International University in 1973.
WILLIAM H. WISHINSKY Mr. Wishinsky has been a Director of the Company and a
member of the Audit Committee of the Board of Directors since October 4, 1999.
Since 1990, Mr. Wishinsky has been the principal of William H. Wishinsky, CPA,
P.C., an accounting firm. From 1988 until 1990, he was an accountant at
Friedman, Alpren & Green, CPA's in New York City. Mr. Wishinsky graduated from
Pace University in New York and received a B.B.A. in Accounting in June 1986. He
became a certified public accountant in 1990.
CASEY MYHRE Mr. Myhre has been a Director of the Company and a member of the
Audit Committee of the Board of Directors since October 4, 1999. Since early
1999, Mr. Myhre has been manager of Kimball International, a furniture
manufacturing company. For the four years prior to his being promoted to
management he worked for Kimball International as a salesman. Mr. Myhre attended
Minnesota School of Business and graduated in 1987.
VINCENT A. DEMARTINO. Mr. DeMartino has been a Director of the Company since
March 23, 2000. Since 1996, Mr. DeMartino has been Professional Sales
Representative and District Trainer for TAP Pharmaceuticals Inc. Prior to 1996
Mr. DeMartino was account executive for Boston Group in New York and maintained
brokerage accounts for customers with growth objectives and managed over one
million dollars in assets. Mr. DeMartino attended Seton Hall University and
received a Bachelors of Arts Degree in May 1989 and majored in criminal justice.
He is also accredited with a Series 7 in 1963.
To the Company's knowledge and based solely on a review of such materials as are
required by the Securities and Exchange Commission, no officer, director or
beneficial holder of more than ten percent of the Company's issued and
outstanding shares of Common Stock ("Beneficial Owner") has filed any forms and
reports required to be filed pursuant to Section 16(a) of the Securities and
Exchange Act of 1934, as amended (the "Exchange Act"), during the fiscal year
ended December 31, 2000; and no officer, director or Beneficial Holder has not
submitted any representation letter to the Company stating that they are not
subject to the filing requirements under Section 16 of the Exchange Act for
fiscal year 2000.
Item 10. Executive Compensation
Except with respect to Mr. Brannon, no compensation has been awarded to, earned
by, or paid to any of the named executives or directors of the Company during
the fiscal year ended 2000 On or about June 1, 2000, the Company issued 169,750
shares of Common Stock to Richard Brannon. The shares were issued to Mr. Brannon
for present and future services rendered in connection with the Company's mining
business. These shares were originally issued in accordance with the exemption
from registration under Section 4(2) of the Act and were subsequently registered
by the Company on Form S-8 on or about June 6, 2000.
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Page 26
On or about December 29, 2000, the Company entered into an Agreement with Mr.
Brannon regarding the issuance of shares to him as compensation for services.
Pursuant to the Agreement, the Company rescinded its agreement to issue shares
in lieu of cash compensation to Mr. Brannon but acknowledged consulting fees of
approximately $175,000 earned by Mr. Brannon from May 2000 through December 31,
2000.
Item 11. Security Ownership of Certain Beneficial Owners and Management
(a) Certain Beneficial Owners of Common Stock
None
(b) Security Ownership of Management of Common Stock
The following table sets forth the beneficial ownership of shares of the
Company's common stock as of March 15, 2001 for each (a) director, (b) executive
officer, and (c) person who is known to be the beneficial owner of five percent
or more of the outstanding shares of Common Stock and all directors and
executive officers as a group.
Name and Amount and Percentage
Address of Nature of of Class
Beneficial Beneficial
Owner (1)(6) Ownership
Robert L. Waligunda(3) 856(4) .06
George E. Otten(2) -0- -0-
Richard Brannon (3)(5)
William C. Martucci(3) -0- -0-
William H. Wishinsky(3) -0- -0-
Casey Myhre(3) -0- -0-
Vincent A. DeMartino(3) -0- -0-
------- -----
All Directors and Executive 856 .06%
Officers as a Group
----------
*Less than 1%
(1) Except as otherwise noted all shares are beneficially owned and the sole
voting and investment power is held by persons indicated.
(2) Former officer and/or director of the Company
(3) Executive officer and/or director of the Company
(4) Includes 400 shares pledged as collateral to a non-affiliate individual
(5) Does not reflect 169,750 shares of Common Stock issued to Brannon in May,
2000 but rescinded in December, 2000. (6) Does not include 159,369 shares
of Common Stock issued to Joseph Laura in May, 2000 but rescinded in
December, 2000.
Item 12. Certain Relationships and Related Transactions
In early 1997, a former officer of the Company introduced Gems to William C.
Martucci ("Martucci") at which time Gems began negotiations with Martucci to
effectuate a business combination with Martucci's businesses and Gems business
ventures. At that time, Gems controlled an 82.5% interest in the Zeus No. 1
Investments, a California General Partnership formed by the Company and Gems to
facilitate the rehabilitation, reclaimation and reopening of the Company's
mining ventures (the "Zeus Joint Venture").
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Page 27
However, during mid 1997, it had become apparent to the Company that Gems did
not possess the technical and financial resources required to bring the Franklin
Mines into operation as contemplated by the Zeus Joint Venture. It was also
during this time that the Company began discussions directly with Martucci with
respect to a possible business combination between his entities and the Company.
As a result of these discussions, on September 25, 1997, the Company entered
into a letter of intent with Martucci to acquire all of the outstanding shares
of certain entities owned by him, including US Mining, Inc. ("USM") in exchange
for 85% of the outstanding shares of stock of the Company. USM is a New Jersey
corporation engaged in the business of acquiring and holding mining properties
and related acquisition was consummated.
Management believed that the financial support to be supplied by Mr. Martucci
pursuant to the Martucci letter of intent would be sufficient to fund the
Company prior to the consummation of the Transaction.
On November 13, 1997 USM entered into an agreement with Audrey Hayden to acquire
her interest in the 28-patented claims comprising the Hayden/Kennec Leases. See
Item 2 - Property - Hayden/Kennec Leases.
On November 25, 1997 USM acquired an aggregate of 82.5% interest in the Zeus
Joint Venture in exchange for the assumption of approximately $100,000 in
liabilities of Gems (the "Gems Liabilities"). USM thereafter simultaneously
assigned the acquired interest to the Company in exchange for the assumption of
the Gem's liabilities. The assignment effectively terminated the Zeus Joint
Venture giving the Company 100% control over its mining ventures.
On April 6, 1998, Martucci terminated the Letter of intent but continued to fund
the Company (the "Advances"). On March 9, 1998, the Company executed a Loan
Agreement and Promissory Note (the "USM Note") evidencing the terms upon which
the Company would repay the USM Advances and upon which USM would advance
additional funds to the Company on an "as needed" basis. The USM Note in the
principal amount of $955,756 at December 31, 1997 bore interest at a rate of 8%
per annum and was due and payable on May 4, 1998, but could be extended on a
month-to-month basis. The USM Note is secured by a first priority lien on
substantially all of the assets of the Company. As of December 31, 1999, the
Company owed USM $1,669,040 of which $1,470,295 is attributable to principal and
$198,745 to accrued unpaid interest on the USM Note.
On or about August 3, 1998, the Company entered into agreements with each of USM
(the "USM Agreement") and Martucci (the "POS Agreement"). Pursuant to the USM
Agreement, USM agreed to forgive the indebtedness of the Company evidenced by
the USM Note; release the security interests in the collateral of the Company
securing the USM Note and assign its rights to the Hayden-USM Purchase Agreement
in exchange for 42.5% of the issued and outstanding shares of the Company. Under
the terms of the POS Agreement, Martucci agreed to sell to the Company 100% of
the outstanding shares of POS and 100% of the assets in exchange for
approximately 42.5% of the issued and outstanding shares of the Company. The
Company intended to seek stockholders' approval of these transactions at its
Annual Meeting of Stockholders held in October 1998.
In August 1998, the Company filed a preliminary proxy statement with the
Securities and Exchange Commission (the "Commission") for its annual meeting of
stockholders, which included proposals to approve each of the USM Agreement and
the POS Agreement. Shortly after the filing of the preliminary proxy materials,
the Commission informed the Company that the staff of the Commission (the
"Staff") would be conducting a review of the proxy materials and the proposals.
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Page 28
The Company informed USM and Martucci of the Staff's inquiry and was thereafter
notified that both parties wished to terminate the agreements under the premise
that the Company could not secure stockholder approval of the transactions in a
timely manner.
On September 21, 1998, the Company received a letter from USM concerning the
monies loaned to the Company by USM, which included the monies owed to USM by
the Company pursuant to the terms of the USM Note and an additional $144,280
loaned to the Company subsequent to the date of the USM Note. At a meeting of
the Board of Directors of the Company on October 8, 1998, a negotiated
settlement agreement was approved by the Board, whereby USM agreed to convert
the Company's indebtedness to USM into shares of common stock of the Company at
a conversion price equal to 50% of the closing bid price as of the close of
business October 7, 1998. The price of the Company's common stock at the close
of business on October 7, 1998 was $1.98, as adjusted per share. Therefore, the
conversion rate under the settlement agreement would be one share of common
stock of the Company for each $1.00, as adjusted of indebtedness of the Company
to USM.
It was further agreed that the settlement plan would be implemented in a
two-step transaction. Approximately $306,160 of loans would be paid by
converting that portion into 309,252, as adjusted shares of common stock of the
Company resulting in USM holding approximately 19% of the total issued and
outstanding shares of common stock of the Company. The conversion of the
remaining indebtedness would be predicated upon either (i) stockholder approval
of the issuance of more than 20% of the Company's common stock in the aggregate
to USM at a discount to market price as required by the rules of corporate
governance promulgated by the NASDAQ Small Cap Market ("NASDAQ"), or (ii) the
issuance of a waiver by the NASDAQ excepting the Company for compliance with
this rule. USM also agreed that it would continue to provide the Company with
financing going forward as further inducement to consummate the settlement
agreement set forth above.
Due to the fact that the Company had already expended significant monies to
conduct a proxy solicitation for its annual meeting scheduled on October 12,
1998, the Company made application to NASDAQ for a waiver of the meeting
requirement described above.
On October 19, 1998, the Company made a formal application to NASDAQ in
accordance with Rule 4310(C)(25)(H)(ii) of the NASDAQ Stock Market for a waiver
of the requirement that the Company call a meeting of its stockholders to
approve the issuance of over 20% in the aggregate of its stock to USM at a price
below market price. The rule allows for a waiver of this requirement when, among
other things, a delay in securing stockholder approval would seriously
jeopardize the financial viability of the Company. On or about October 24, 1998,
the NASDAQ Stock Market contacted the Company and indicated that it was inclined
to deny the Company's application unless additional information was submitted
for review. The Company thereafter withdrew its application and re-opened
negotiations with USM. The Company sought to continue discussions with Martucci
in hopes of preventing a foreclosure on the USM Note. The Company was successful
in convincing Martucci to continue funding the Company in hopes that the Company
could begin operations and generate revenues to repay the USM Note
Mr. Martucci was elected to the Board of Directors of the Company in
October,1998.
On or about June 21, 1999, the Company entered into a letter of intent with USM
to purchase substantially all of its assets in exchange for shares of common
stock of the Company equal to 69% of the issued and outstanding shares of common
stock. The letter of intent further contemplated the forgiveness of the USM Note
and release of the security therefore upon the closing of the transaction. On or
about October 5, 1999 USM notified WCM Capital, Inc. that it was withdrawing its
letter of intent.
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On January 18, 2000, the Company, Martucci and USM entered into an agreement
whereby the Company agreed to acquire USM in exchange for 7,473,013 shares of
the Common Stock which is approximately 85% of the Company's common stock (the
"Transaction"). The terms of this agreement were negotiated between Mr. Martucci
and Mr. Waligunda and were approved by the Board of Directors of the Company.
The agreement may be terminated by unanimous consent of the parties, in the
event of a breach of the terms of the contract by any of the parties, in the
event of an injunction preventing the closing or if the closing has not occurred
on or before July 16, 2000. As a condition to closing, the Company must seek
shareholder approval of the Transaction. In addition, the Company has agreed to
grant Martucci piggyback and demand registration rights with respect to the
shares he is to receive in the Transaction. The Company filed a proxy statement
with respect to the Transaction shortly after the execution of the purchase
agreement.
In March 2000, the Company announced that it has reached an agreement in
principal with Martucci to acquire Shoppers Online, Inc. and Freebees, Inc., two
related Internet companies 100% owned by him. Shoppers Online was in the process
of launching an on line shopping portal (www.shoppersonline.com) and incubator
for the development of business-to-business e-commerce. Freebees is developing a
give-away, fulfillment and refund web site to be linked to Shoppers Online which
will allow Internet consumers to participate in promotional and redemption
programs offered by various companies operating in both e-commerce and brick and
mortar retail businesses. To memorialize our agreement, the Company and Martucci
executed a letter of intent on April 17, 2000. It was anticipated that the
Company and Martucci would amend the USM Stock Purchase Agreement to include
these Internet businesses as part of the stock for stock transaction
contemplated thereby.
After completing our investigation of Shoppers Online and Freebees, it became
evident that both Shoppers Online and Freebees were both in the developmental
stages and were not generating any revenues. Moreover, we believed that these
companies would require additional investments of capital before full-scale
operations could begin. At this point, the Company determined that the
acquisition of these companies would not add any value to our Company as neither
company could provide us with much needed revenues. Therefore, we terminated our
letter of intent and decided not to proceed with this transaction.
By June, 2000, it became clear that the proxy materials would not be cleared by
the Commission prior to the July 16, 2000 expiration date of the purchase
agreement. USM agreed to extend the contract through September 30, 2000. The
Company was unable to obtain shareholder approval of the Transaction prior to
September 30, 2000 and USM was not willing to grant any further extensions. As a
result the purchase agreement expired.
Since the expiration of the purchase agreement, there have been no further
negotiations between the Company and USM with respect to a possible business
combination or other transaction. The Company has not made any payments to USM
in satisfaction of its indebtedness, rather, USM has agreed and is continuing to
fund the Company on a month-to-month basis. While USM has not notified the
Company of its intention to foreclose on its note, there can be no assurance
that the USM will do so in the future. Any actions concerning the foreclosure of
the USM Note can have a serious adverse effect on the business of the Company.
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PART IV
Item 13. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Exhibits
The following documents are filed as exhibits herewith, unless otherwise
specified by an asterisk, and are incorporated herein by this reference:
Exhibit
Number Description of Exhibit
3.1 Amended and Restated Certificate of Incorporation filed with the
Delaware Secretary of State on December 4, 1995. (Incorporated by
reference, Annual Report on Form 10KSB for year ended December 31,
1995)
3.2 Amended and Restated By-Laws of the Company (Incorporated by
reference, Annual Report on Form 10-K for Year Ended December 31,
1994, Exhibit 3.2.)
3.3 Amendment to the Certificate of Incorporation filed with the Secretary
of State of Delaware on May 21, 1998. (Incorporated by reference,
Annual Report on Form 10-KSB for Year Ended December 31, 1998).
3.4 Amendment to the Certificate of Incorporation filed with the Secretary
of State of Delaware on October 16, 1998. (Incorporated by reference,
Annual Report on Form 10-KSB for Year Ended December 31, 1998)
3.5 Amendment to the Certificate of Incorporation filed with the Secretary
of State of Delaware on December 17, 1999. (Incorporated by reference,
Annual Report on Form 10-KSB for Year Ended December 31, 1999)
4.1 Form of Indenture dated January 2, 1990 (Incorporated by reference,
Registration Statement on Form S-1, File No. 33-31418, Exhibit 4.1.)
10.1 Mining Lease and Option to Purchase, dated November 12, 1976, among
Davis I. And Audrey I. Hayden, husband and wife, and Dorothy L.
Kennec, a single woman and trustee for her children, and Gold
Developers and Producers Incorporated (Incorporated by reference,
Registration Statement on Form S-1, File No. 33-31418, Exhibit 10.1.)
10.2 Indenture, dated August 2, 1982, by and between the Company and David
I. and Dorothy I. Hayden. (Incorporated by reference, Registration
Statement on Form S-1, File No. 33-31418, Exhibit 10.2.)
10.3 Agreement dated August 2, 1982, by and between the Company and David
I. and Audrey I. Hayden. (Incorporated by reference, Registration
Statement on Form S-1, File. No. 33-31418, Exhibit 10.3)
10.5 Zeus Joint Venture Agreement, dated February 26, 1993 between the
company and Island Investment Co. (Incorporated by reference, Current
Report on Form 8-K dated July 19, 1993, File No. 0-9416, Exhibit (a)
filed as exhibit to Schedule 13D filed by Gems & Minerals Corp.)
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10.8 Amendment to Zeus Joint Venture Agreement, dated as of August 31,
1993, by and between the Company and Island Investment Co. and Gems &
Minerals Corp. (Incorporated by reference, Current Report on Form 8-K,
dated August 31,1993, File No. 0-9416, Exhibit (a)).
10.26 Promissory Note dated July 6, 1996 by the Company in favor of Anderson
Chemical Co. in the aggregate principal amount of $20,000.
(Incorporated by reference, Annual Report on Form 10-KSB for year
ended December 31, 1996, File No. 0-9416, Exhibit 10.26).
10.28 First Amendment to the Joint Venture Agreement of Zeus No. 1
Investments, a California general partnership, dated August 15, 1996.
(Incorporated by reference, Annual Report on Form 10-KSB for year
ended December 31, 1996, File No. 0-9416, Exhibit 10.28)
10.32 Amendment dated November 19, 1996, mining lease and Option to
Purchase, dated November 12, 1996, between the Company and Mrs.
Dorothy Kennec. (Incorporated by reference, Annual Report on Form
10-KSB for year ended December 31, 1996, File No. 0-9416, Exhibit
10.31).
10.34 Lease Extension Agreement dated November 21, 1997 between Dorothy L.
Kennec, individually and Dorothy L. Kennec, Trustee and the Company.
10.35 Assumption of Debt dated December 1, 1997 between the Company and Gems
& Minerals Corp.
10.36 Promissory Note dated March 5, 1998 between the Company and POS
Financial, Inc.
10.37 Termination Letter dated March 6, 1998 between William Martucci, POS
Financial, Inc. and US Mining, Inc. and the Company.
10.38 Letter of intent dated September 25, 1997, by and between the Company
and William C. Martucci (Incorporated by reference on Form 8-K dated
October 20, 1997, File No. 0-9416, Exhibit A).
10.39 Letter of intent dated June 21, 1999, by and between the Company and
U.S. Mining, Inc. (Incorporated by reference on Form 8-K dated June
24, 1999, File No. 0-9416).
10.40 Agreement dated January 2000, by and between the Company and US
Mining, Inc. (Incorporated by reference in Preliminary Proxy dated
February 22, 2000.
13 Proxy Statement to Stockholders of the Company for the fiscal year
ended December 31, 1994. Except for those portions of such Proxy
Statement to Stockholders, expressly incorporated by reference into
this Report, such Annual Report to Stockholders is solely for the
information of the Securities and Exchange Commission and shall not be
deemed a "filed" document. (Incorporated by reference, Annual Report
on Form 10-KSB for Year Ended December 31, 1995).
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24.1 Consent of Gifford A. Dieterle, dated June 3, 1994, as an Expert with
respect to the geological reports dated December 7, 1993, and May 16,
1994 filed as supplemental information with the Company's Annual
Report on Form 10-K for the year ended December 31, 1994.
(Incorporated by reference, Annual Report on Form 10-K for Year Ended
December 31, 1993, File No. 0-9416, Exhibit 23.)
28.1 Maps and Geological Reports prepared by consultant Gifford A. Dieterle
dated December 7, 1993 and May 16, 1994. (Incorporated by reference,
Annual Report on Form 10-K for Year Ended December 31, 1993, File No.
0-9416, Exhibit 23.)
* Filed herewith
Reports on Form 8-K
November 6, 2000 - dismissal of Ehrenkrantz Sterling & Co., LLC
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WCM CAPITAL, INC.
(Formerly FRANKLIN CONSOLIDATED MINING CO., INC.)
/s/ Robert Waligunda
April 16, 2000 --------------------------------------
Robert Waligunda, President/Treasurer
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Robert Waligunda
------------------------ President, Treasurer April 16, 2001
Robert Waligunda and Director
/s/ Richard Brannon
------------------------ Vice President/Secretary April 16, 2001
Richard Brannon
/s/ George Otten
------------------------ Vice President April 16, 2001
George Otten
/s/ William C. Martucci Director April 16, 2001
------------------------
William C. Martucci
/s/ Casey Meyer Director April 16, 2001
------------------------
Casey Meyer
/s/ William Wishinsky Director April 16, 2001
------------------------
William Wishinsky
/s/ Vincent A. DeMartino Director April 16, 2001
------------------------
Vincent A. DeMartino
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