-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ML1hbetX0sI5yoHDDTx47KFiSZSFrIxGYQPqE9q8Q77H9O9OtYqHJ5yaQ2BPz6iN 1qcrPhzHQ55EJRL1dKlebg== 0000891554-00-001344.txt : 20000516 0000891554-00-001344.hdr.sgml : 20000516 ACCESSION NUMBER: 0000891554-00-001344 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WCM CAPITAL INC CENTRAL INDEX KEY: 0000215913 STANDARD INDUSTRIAL CLASSIFICATION: GOLD & SILVER ORES [1040] IRS NUMBER: 132879202 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-09416 FILM NUMBER: 633312 BUSINESS ADDRESS: STREET 1: 76 BEAVER ST STREET 2: SUITE 500 CITY: NEW YORK STATE: NY ZIP: 10005 BUSINESS PHONE: 2123442828 MAIL ADDRESS: STREET 1: 76 BEAVER ST STREET 2: SUITE 500 CITY: NEW YORK STATE: NY ZIP: 10005 FORMER COMPANY: FORMER CONFORMED NAME: FRANKLIN CONSOLIDATED MINING CO INC DATE OF NAME CHANGE: 19920703 10QSB 1 QUARTERLY REPORT U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the Quarter Ended March 31, 2000 Commission File No. 0-9416 WCM CAPITAL, INC. (FORMERLY FRANKLIN CONSOLIDATED MINING CO., INC.) (Exact name of registrant as specified in its charter) Delaware #13-2879202 (State or other jurisdiction (I.R.S. Employer incorporation or organization) Identification No.) 76 Beaver Street, Suite 500, New York, New York 10005 (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area code (212) 344-2828 The Number of Shares Outstanding of Common Stock $.01 Par Value, at March 31, 2000 1,318,767 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports,) and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ___ WCM CAPITAL, INC. (A DEVELOPMENT STAGE COMPANY) CONDENSED BALANCE SHEETS (Unaudited)
ASSETS March 31, December 31, 2000 1999 ------------ ------------ CURRENT ASSETS: Cash and cash equivalents $ -- $ -- ------------ ------------ TOTAL CURRENT ASSETS -- -- Mining, milling and other property and equipment, net of accumulated depreciation and depletion of $2,179,709 and $2,166,261 4,604,386 4,617,834 Mining reclamation bonds 137,701 137,016 ------------ ------------ $ 4,742,087 $ 4,754,850 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses $ 699,289 $ 689,049 Payroll and other taxes payable 29,960 29,960 Convertible debentures 145,000 145,000 Notes payable - related party and others 218,965 218,965 Note payable - related party 1,627,438 1,470,295 ------------ ------------ TOTAL CURRENT LIABILITIES 2,720,652 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 18,390,360 18,390,360 Deficit accumulated during the development stage (16,382,113) (16,201,967) ------------ ------------ 2,021,435 2,201,581 ------------ ------------ $ 4,742,087 $ 4,754,850 ============ ============
See notes to condensed financial statements. 2 WCM CAPITAL, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2000 AND 1999 AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION) TO MARCH 31, 2000 (Unaudited)
Cumulative from 2000 1999 Inception ------------ ------------ ------------ REVENUES: Sales $ -- $ -- $ 876,082 Interest income 685 399 551,794 Other income -- -- 79,397 ------------ ------------ ------------ 685 399 1,507,273 ------------ ------------ ------------ EXPENSES: Mine expenses and environmental remediation costs 480 14,677 3,621,590 Write-down of mining and milling and other property and equipment -- -- 1,795,000 Depreciation and depletion 13,447 6,677 2,375,057 General and administrative expenses 126,768 25,642 6,608,973 Interest expense 40,137 34,599 1,326,569 Amortization of debt issuance expense -- -- 683,047 Equity in net loss and settlement of claims of Joint Venture -- -- 1,059,971 Other -- -- 419,179 ------------ ------------ ------------ 180,832 81,595 17,889,386 ------------ ------------ ------------ NET LOSS $ (180,147) $ (81,196) $(16,382,113) ============ ============ ============ BASIC LOSS PER COMMON SHARE $ (.14) $ (.06) ============ ============ WEIGHTED AVERAGE SHARES OUTSTANDING 1,318,767 1,318,767 ============ ============
See notes to condensed financial statements. 3 WCM CAPITAL, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 2000 AND 1999 AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION) TO MARCH 31, 2000 (Unaudited)
Cumulative from 2000 1999 Inception ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (180,147) $ (81,196) $(16,382,113) Adjustments to reconcile net loss to net cash used in Operating activities: Depreciation and depletion 13,447 6,677 2,375,056 Provision for bad debt -- -- 350,000 Write-down of mining and milling and other Property and equipment -- -- 1,530,000 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 Settlement of 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 loss of joint venture -- -- 123,971 Other -- -- (7,123) Changes in operating assets and liabilities: Interest accrued on mining reclamation bonds (685) (399) (12,701) Accounts payable and accrued expenses 10,240 (47,047) 961,505 ------------ ------------ ------------ NET CASH USED IN OPERATING ACTIVITIES (157,145) (121,965) (6,718,064) ------------ ------------ ------------ 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) ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Issuances of common stock -- -- 8,758,257 Issuance of underwriter's stock warrants -- -- 100 Commissions on sales of common stock -- -- (381,860) Purchases of treasury stock -- -- (12,500) Payments of deferred underwriting costs -- -- (63,814) Proceeds from exercise of stock options -- -- 306,300 Issuance of convertible debentures and notes -- -- 1,505,000 Proceeds of advances from joint venture partner -- -- 526,288 Advances to joint venture partner -- -- (181,017) Payments of debt issuance expenses -- -- (164,233) Proceeds of other notes and loans payable 157,145 121,965 2,038,923 Repayments of other notes and loans payable -- -- (120,000) Proceeds of loans from affiliate -- -- 55,954 Repayments of loans from affiliate -- -- (48,661) ------------ ------------ ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 157,145 121,965 12,218,737 ------------ ------------ ------------
(Continued) 4 WCM CAPITAL, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 2000 AND 1999 AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION) TO MARCH 31, 2000 (Unaudited)
Cumulative from 2000 1999 Inception ------------ ------------ ------------ DECREASE IN CASH $ -- $ -- $ -- CASH - beginning of period -- -- -- ------------ ------------ ------------ CASH - end of period $ -- $ -- $ -- ============ ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA: Interest paid $ -- $ -- $ 299,868 ============ ============ ============
See notes to condensed financial statements. 5 WCM CAPITAL, INC. (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO CONDENSED FINANCIAL STATEMENTS MARCH 31, 2000 NOTE 1 - UNAUDITED INTERIM FINANCIAL STATEMENTS In the opinion of management, the accompanying unaudited condensed financial statements reflect all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial position of WCM CAPITAL, INC. (the "Company") as of March 31, 2000, and its results of operations and cash flows for the three months ended March 31, 2000 and 1999. Information included in the condensed balance sheet as of December 31, 1999 has been derived from the audited balance sheet in the Company's Annual Report on Form 10-KSB for the year ended December 31, 1999 (the "10-KSB") filed with the Securities and Exchange Commission. Certain terms used herein are defined in the 10-KSB. Accordingly, these unaudited condensed financial statements should be read in conjunction with the financial statements, notes to financial statements and the other information in the 10-KSB. The results of operations for the three months ended March 31, 2000 are not necessarily indicative of the results of operations for the full year ending December 31, 2000. NOTE 2 - BASIS OF PRESENTATION 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 at March 31, 2000, the Company has an accumulated deficit of $16,382,114, current liabilities of $2,720,652, and a working capital deficiency of $2,720,652. Also, the Company was in default on the payment of the principal balance and accrued interest on certain notes and debentures and certain accounts payable are past due. In addition to the payment 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, at the rate of approximately $20,000 per month plus interest during 2000. Such matters raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that may result from the outcome of the above uncertainty. U.S. Mining Co. and its affiliates have pledged to provide financing to the Company on an as needed basis until on or about December 31, 2000. The funds received from USM and its affiliates will cover the general, administrative and other costs approximated at $20,000 per month plus interest. Additional funds will be needed to ready the Franklin Mine and Mill properties for the commencement of extraction and milling and 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 and its affiliates. 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 explore the Franklin Mines. Substantially all of the $4,604,386 of mineral properties and equipment included in the accompanying balance sheet as of March 31, 2000, is related to exploration properties. The ultimate realization of the Company's investment in exploration 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 upon future profitable production. 6 WCM CAPITAL, INC. (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO CONDENSED FINANCIAL STATEMENTS MARCH 31, 2000 NOTE 3 - NOTES PAYABLE RELATED PARTY AND OTHERS Notes payable related party and others consist of the following at March 31, 2000: 12% unsecured demand note due to an affiliate of the former president of the Company $ 71,965 Secured promissory note (a) 60,000 Unsecured promissory notes (b) 87,000 -------- $218,965 ======== (a) The outstanding principal balance of the note became payable on July 18, 1996 and the Company is in default. The note is guaranteed by certain officers of Gems and is collateralized through a subordinated security interest in the Company's mining reclamation bond. Interest on the note is payable based on the rate of interest applicable to the mining reclamation bond. (b) This principal amount represents four unsecured promissory notes comprised of one $36,000 note and three $17,000 notes payable. The Company assumed these obligations on November 25, 1997, as part of the acquisition from USM of the remaining interest in the Joint Venture. These notes were in default when assumed by the Company, and remain in default as of March 31, 2000. Interest is being accrued at rates between 8% and 17% per annum. Accrued interest on the above notes at March 31, 2000 aggregated approximately $71,000. NOTE 4 - CONVERTIBLE DEBENTURES The Company's convertible debt at March 31, 2000 consist of: 12.25% convertible debenture originally due 12/31/94 $145,000 As of March 31, 2000, the Company was in default with respect to the payment of the $145,000 principal balance of the debenture and accrued interest of approximately $88,000. As a result of its default, the Company is subject to and may be subject to further litigation 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 there will be funds available for the required payments or what the effects will be of any actions brought by or on behalf of the debenture holders. NOTE 5 - NOTE PAYABLE - RELATED PARTY The Company had outstanding a 8% promissory note balance of $1,627,438, at March 31, 2000, which represents monies advanced to the Company by U.S. Mining, Inc. ("USM") and obligations assumed in connection with the contributions of Joint Venture interests in 1997. The note was payable on May 4, 1998, and is secured by all the Company's mining claims and mining properties, as well as its interests in the Hayden/Kennec Leases. The note is subject to successive 30-day extensions throughout 1998 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 can exert significant influence over the Company. Accrued interest at March 31, 2000 was approximately $229,000. 7 WCM CAPITAL, INC. (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO CONDENSED FINANCIAL STATEMENTS MARCH 31, 2000 NOTE 6 - COMMITMENTS AND CONTINGENCIES (a) Lease Agreements The original Hayden/Kennec Leases provided for payment by the Company of certain liabilities relating to the leased property and a minimum royalty payment of $2,000 per month or 5% of the Company's net smelter royalties realized from production, whichever is greater to Mrs. Hayden and Mrs. Kennec. The original Hayden/Kennec Leases expired in November 1996, at which time the Company had the option to purchase the leasehold rights for a purchase price of $1,250,000 less any royalties previously paid as of the expiration date. As of November 1996, the Company had paid approximately $480,000 in royalties. To further secure the ability of the Company and the Joint Venture to utilize the leasehold covered by the Hayden/Kennec Leases, Gems entered into an agreement with Mrs. Hayden to purchase her interest in the Hayden/Kennec Leases (the "Hayden Interest".) Gems had advised the Company that under Colorado Law, if an owner of 50% of mineral rights desires to exploit those rights, then the remaining 50% owner could not object to the exploitation of the rights, provided the non-participating owner received 50% of the net profits generated from such exploitation. Therefore, by acquiring the Hayden Interest, the Company would be free to exploit the leasehold interests comprising the Franklin mining properties irrespective of whether Mrs. Kennec elected not to renew her portion of the Hayden/Kennec Leases or sell her interest to the Company as per the terms of the Agreement. However, on or about November 11, 1997, Gems defaulted on its obligations under the terms of the purchase agreement and the agreement terminated. 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 is evidenced by note, due on February 2, 1998. Upon the execution of the Hayden-USM Purchase Agreement, USM agreed to extend the Hayden/Kennec Leases upon the same terms and conditions currently in effect through March 13th, 1998 (the "Extended Expiration Date"). As of the date hereof, USM has not consummated the transaction contemplated by the Hayden-USM Purchase Agreement; however, it is expected that the transactions will close upon delivery by Hayden of clear title to the interests being conveyed to USM. USM has continued to make royalty payments to Mrs. Hayden as required by the Hayden-USM Purchase Agreement. As of the date hereof, the Company has been advised by USM that the Hayden-USM Purchase Agreement is in full force and effect. On or about November 19, 1996, the Company entered into an agreement with Mrs. Dorothy Kennec to extend her portion of the Hayden/Kennec Leases through November 12, 1997. This agreement was further extended through March 12, 1998; however, as of the date hereof, Mrs. Kennec has granted no further extensions. There can be no assurance that the Company and Mrs. Kennec will come to any agreement with respect to the use of her leasehold interest or to purchase her interest in the future. 8 WCM CAPITAL, INC. (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO CONDENSED FINANCIAL STATEMENTS MARCH 31, 2000 NOTE 6 - 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, 2000, 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 In September 1997, certain of the Company's 12.25% Convertible Debenture holders 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. Default 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. (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. 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. 9 MANAGEMENT'S DISCUSSION AND ANALYSIS Liquidity and Capital Resources The Company had no active mining or milling operations during the first quarter of 2000; however, the Company continued its efforts to bring the site into compliance with groundwater regulations and to stabilize the tailings ponds and site generally. During the first quarter of 2000, the Company filed a notice with the Division of Minerals and Geology (the "DMG") requesting that its permit be placed into Temporary Cessation. A 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 filing of a notice of such intent with the DMG. As a condition to granting the Company's request, the DMG required that the Company address certain issues with respect to groundwater and tailings disposal ponds by May 30, 2000. Thus, the Company's efforts have been focused on addressing these issues. While the Company intends to place its permit into Temporary Cessation, the Company remains hopeful that economically viable commercial mining operations at the Idaho Springs mining facilities can be conducted in the future. However, given the current economic climate, it is unlikely that the Company will commence operations in the year 2000. 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 and interest, at the rate of approximately $20,000 per month for the remainder of 1999. U.S. Mining Co. and its affiliates have verbally pledged to provide financing to the Company on an as needed basis until on or about December 31, 2000. The Company cannot assure, however, that USM will fulfill its commitment to fund the Company's operations through year-end 2000. The funds received from USM and its affiliates will cover the general, administrative and other costs approximated at $20,000 per month plus interest. Additional monies will be needed to ready the Franklin Mine and Milling properties for the commencement of extraction and milling and 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 and its affiliates or that USM will fulfill its obligations to fund the Company through December 31, 2000. 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 explore the Franklin Mines. Results of Operations: Three months ended March 31, 2000 and 1999 The Company had no active mining or milling operations during 2000. The Company had a net loss of $180,147 for the three months ended March 31, 2000 as compared to a net loss of $81,196 during the same period in 1999. The increase of $98,951 was attributable to: (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. 10 (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. Three months ended March 31, 1999 and 1998 The Company had a net loss of $81,196 for the three months ended March 31, 1999 as compared to a net loss of $171,430 during the same period in 1998. General and administrative expenses were $25,642 for the first quarter 1999 compared with $101,494 during the same period in 1998. This decrease was due to a substantial decrease in legal and professional fees, as well as settlements with venders resulting in a reduction of accounts payable of approximately $38,000. Interest expense was $34,599 during the 1999 quarter as compared to $27,095 in the 1998 quarter. This increase was due to interest incurred on the USM note. PART II Item 1. Legal Proceedings 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. 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. Although the Company was in default, it agreed to continue to make quarterly interest payments to the Debenture Holders during fiscal year 1995 until such time as the principal amount of the Debentures could be paid in full. It was anticipated that the Company would have the funds available to make such payments by December 31, 1995. The Company made the first quarterly interest payment due on the Debentures in 1995 but has failed to make any additional payments with respect to such interest thereafter. On or about December 1995, all but 1,000 of the Debentures agreed to extend the maturity date of the Debentures to December 31, 1996; however, the Company was unable to make any principal or interest payments since March 31, 1995. 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. 11 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 issues of attorney's fees were 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. Environmental Matters: As of the date hereof, the Company has no violations against it with respect to the Franklin Mines and Franklin Mill. While there are no outstanding violations against the Company at this time, there can be no assurance that the Company will be able to adequately comply with any future conditions set forth by the DMG regarding its permit or that violations will not arise in the future. There can be no assurance, however, that the Company will adequately address the groundwater and tailings issues relating to its notification to place its permit into Temporary Cessation, which may result in violations cited by the DMG. For future information regarding Temporary Cessation, See Management Discussion and Analysis in Part I of this Report and Item 5. Other Information in Part II of this Report. Item 3. Default on Senior Securities See Item 1. Legal Proceedings - Convertible Debenture Item 5. Other Information Acquisition of USM, Shoppers Online and Freebees On January 18, 2000, the Company, William C. Martucci and US Mining, Inc. a New Jersey corporation 100% owned by Mr. Martucci, entered into an agreement whereby the Company agreed to acquire USM in exchange for 7,473,013 shares of the Common Stock or approximately 85% of the Company's common stock (the "Transaction"). 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 12 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 has filed a proxy statement with respect to the Transaction, which is currently subject to a review by the staff. In March 2000, the Company reached an agreement in principal with Mr. Martucci to acquire Shoppers Online, Inc. and Freebees, Inc., two related Internet companies 100% owned by him. Shoppers Online currently operates an on line shopping portal (www.shoppersonline.com) and incubator for the development of business to business e-commerce. Freebees is currently 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. It is anticipated that the Company and Mr. Martucci will enter into a definitive agreement with respect to the acquisition of these Companies prior to filing its amendment to its proxy statement which was filed in January 2000. It is contemplated that the Company will acquire all three entities under the same term as the original USM acquisition. Therefore, in exchange for the acquisition of USM, Shoppers Online and Freebees, Martucci will retire indebtedness of approximately $2 Million of the Company currently owned to US Mining and will receive 85% of the Company's common stock. Temporary Cessation Notification Throughout 1999, inspections of the Franklin Mining properties revealed that certain reclaimation issues still remained outstanding at the property. Specifically, certain drainage problems and substandard linings at the tailings disposal areas created potential hazards and required protection measures be 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, and commenced operations. The Company explained its difficulty in obtaining needed financing to continue its reclaimation 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. The company further stated, however, that it did 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 reclaimation work or mining work would be required for the duration of the Temporary Cessation, beyond basic maintenance and reclaimation 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 reclaimation 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 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 13 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. The Company has been given until April 6, 2000 to submit a written commitment to complete all of the required actions by May 30, 2000 for its Temporary Cessation request to be granted. In addition, before coming out of Temporary Cessation, the Company must commit to determining whether the current conditions of its tailings disposal areas is adequate for further tailings disposal and in no event will the Franklin Mill be permitted to operate without prior approval by DMG of a comprehensive tailings disposal plan. Despite the Company's decision to place its permit into Temporary Cessation, the Company remains hopeful that economically viable commercial mining operations at the Idaho Springs mining facilities can be conducted in the future, however, given the current economic climate, it is unlikely that the Company will commence operations in the year 2000. It is the Company's intention, however, to prepare for full-scale operations should the price of gold reach $350 per ounce or greater. The Companies will continue to work closely with Colorado state mining regulatory agencies in preparation and anticipation of full-scale operations at the Franklin Mines and Franklin Mill. After consultation with USM and completion of preliminary due diligence with respect to the feasibility of commencing mining operations at the Shafter Mining properties, the Company decided not to pursue this venture at this time and notified the other parties of its decision on or about April 1999. Item 6. Exhibits and Reports on Form 8-K (all filed in original filing) A. Exhibits (a) Letter of Intent of Freebees, Shoppers Online (b) Press Release dated: January 24, 2000 B. Reports on Form 8-K NONE SIGNATURE In accordance with the requirements of the Securities and Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WCM CAPITAL, INC. Date: May 15, 2000 /s/ Robert Waligunda ---------------------------------------- Robert Waligunda, President 14 WCM CAPITAL, INC. 76 BEAVER STREET SUITE 500 NEW YORK, NY 10005 PHONE (212)344-2828 FAX (212)344-4537 April 17, 2000 Mr. William Martucci U. S. Mining, Inc. Shoppers Online, Inc. Freebees, Inc., 3 Dundar Road Springfield, New Jersey 07081 Dear Mr. Martucci: This will confirm our understanding concerning the proposed purchase (the "Transaction') by WCM Capital, Inc., a Delaware corporation ("WCM") of all of the issued and outstanding shares of common stock ("USM Shares") of U.S. Mining, Inc., a New Jersey corporation ('USM"), ("SOL Shares") Shoppers Online, Inc. a New Jersey corporation ("SOL") and ("FB Shares") Freebees, Inc, a New Jersey corporation ("FB") in exchange for shares of WCM's common stock ("WCM Shares") which, upon issuance, will represent approximately 85% of the issued and outstanding WCM Shares. This letter does not contain all matters upon which agreement must be reached in order for the Transaction to be consummated, but is intended to bind the parties to certain of the material provisions of the Transaction. The terms of our understanding are as follows: 1. William Martucci, the sole shareholder of USM, SOL & FB ("USM, SOL & FB Shareholder"), shall transfer to WCM, all USM Shares, all SOL Shares and all FB Shares owned by him, which represent 100% of the issued and outstanding of USM Shares, SOL Shares an FB Shares. 2. In exchange for such USM, SOL & FB Shares, WCM will, at the closing of the Transaction, cause to be issued to the USM Shareholder, SOL Shareholder & FB Shareholder, or nominee, such number of WCM Shares which, upon issuance, will represent approximately 85% of a definitive agreement and as a condition of closing of the Transaction, cause a special meeting of its stockholders to be convened to, among other things, approve all of terms and conditions of the Transaction. 3. USM further agrees that it shall loan, or cause to be loaned to WCM such funds as may be necessary to allow WCM to proceed with the Transaction. WCM hereby agrees that it shall provide security for such loans in a form satisfactory to USM. 15 The parties agree that the terms and conditions of this letter are to be kept confidential and shall be treated as such until such time as the parties shall agree to publicly disclose the same. As soon as the parties shall determine that the terms of this letter should be announced publicly but not later than three business days from the date of the execution of a definitive agreement, WCM shall issue a press release in the form and substance agreeable to the parties. Following your signature, the parties will cause their respective officers, employees, attorneys, agents, investment bankers, accountants and other representatives working on the Transaction to cooperate with each other with respect to the Transaction until the Transaction is consummated or negotiations with respect thereto are terminated. Following your signature, the parties agree that until the Transaction is consummated or negotiations with respect thereto are terminated, to conduct their respective business and operations in all respects only in the ordinary course unless otherwise consented to in writing by the other party. Following your signature, until the Transaction is consummated or negotiations with respect thereto are terminated, each party will afford to the officers, employees, attorneys, agents, investment bankers, accountants, and other representatives of the other party working on the Transaction free and full access to its plants, properties, books, and records, will permit them to make extracts from and copies of such books and records, and will from time to time furnish them with such additional financial and operating data and other information as to its financial condition, results of operations, business, properties, assets, liabilities, or future prospects as they from time to time may request. Each party will cause its independent certified public accountants to make available to the other party and its independent certified public accountant, the work papers relating to any audit of its financial statements in the last three years. Each party shall insure that all confidential information, including, but not limited to, the terms of this letter, which such party or any of its respective officers, directors, employees, attorneys, agents, investment bankers, or accountants may now possess or may hereafter create or obtain relating to the financial condition, results of operations, business, properties, assets, liabilities, or future prospects of the other party, any affiliate of the other party, or any customer or supplier of such other party or any such affiliate shall not be published, disclosed, or made accessible by any of them to any other person or entity at any time or used by any of them, in each case without the prior written consent of the other party, or in the case of the terms of this letter, without the prior consent of both parties as set forth herein; provided, however, that the restrictions of this sentence shall not apply (a) as may otherwise be required by law, (b) as may be necessary or appropriate in connection with the enforcement of this Agreement, (c) to the extent such information shall have otherwise become publicly available, or (d) as to USM, SOL and FB to disclosure by or on its behalf to existing or prospective lenders or to others whose consent may be required or desirable in connection with obtaining the financing or consents 16 which are required or desirable to consummate the Transaction. Each party shall, and shall cause all of such other persons and entities who received confidential data from it to, deliver to the other party all tangible evidence of such confidential information to which the restrictions of the foregoing sentence apply at such time as negotiations with respect to the Transaction are terminated before the parties enter into any formal agreement as contemplated by this letter of intent. Unless otherwise terminated in accordance with this paragraph, this letter constitutes a binding agreement among the parties and constitutes an agreement by the parties to use their best efforts to negotiate, execute and deliver of formal agreements setting forth all of the terms and conditions upon which the Transaction may be consummated. It is understood that this is a binding letter of intent and the parties hereto agree to the contents hereof and agree to proceed in good faith to work out the details of the Transaction; however, USM, SOL and FB may, upon written notice to WCM, terminate its obligations hereunder at any time prior to the execution of a definitive agreement (hereinafter a "Termination"). In the event of a Termination, neither party shall have any legal obligation to the other (other than those obligations contained in the preceding paragraph of this letter, and the obligations contained in the preceding paragraph shall continue to apply after negotiations with respect to the Transaction are terminated). This letter may not be assigned by either of the parties hereto. Neither party shall be responsible for any of the other's expenses in connection with the negotiations, documents, or transactions contemplated hereby, except as otherwise contemplated herein. If this letter accurately reflects our understanding, please so indicate by signing the original and duplicate of this letter, and returning a fully executed copy to the undersigned, so that we can promptly commence work on the formal documents relating to the Transaction. Accepted and agreed to this 17th day of April, 2000 WCM CAPITAL, INC. By: /s/ Robert Waligunda ----------------------------------- Robert Waligunda, Pres. Accepted and agreed to U. S. Mining, Inc. this 17th day of April, 2000 By: /s/ William Martucci ----------------------------------- William Martucci, President 17 Accepted and agreed to Shoppers Online, Inc. this 17th day of April, 2000 By: /s/ William Martucci ----------------------------------- William Martucci, President Accepted and agreed to Freebees, Inc. this 17th day of April, 2000 By: /s/ William Martucci ----------------------------------- William Martucci, President 18 EX-99 2 PRESS RELEASE FOR IMMEDIATE RELEASE New York, New York/Idaho Springs, Colorado - JANUARY 24, 2000 - WCM CAPITAL, INC. (NASDAQ symbol WCMC) announced today that the Board of Directors of the Company and William C. Martucci, President of U.S. Mining, Inc. (USM) a New Jersey corporation, having entered into a Letter of Intent, formalized that letter by signing a Stock Purchase Agreement on January 18, 2000. The Stock Purchase Agreement will allow the Company to acquire 100% of USM stock for 85% of the Company's outstanding common stock. The Company will put the Stock Purchase Agreement before the shareholders at a Special Shareholders meeting scheduled for late February 2000. Robert J. Waligunda, president of USM, stated, "I believe that this agreement is necessary for future viability of the Company and should be approved by the stockholders." CONTACT: Robert Waligunda, Pres. (212) - 344-2828 Statements in this press release, other than statements of historical information, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that forward-looking statements are inherently uncertain. Actual performance and results may differ materially from that projected or suggested due to certain risks and uncertainties including, without limitation, risks associated with mining and milling operations, the availability of debt and equity capital on a reasonable terms and the effects of government regulations and operations risks. Additional information concerning certain risks and uncertainties that could cause actual, results to differ materially from that projected or suggested is contained in the Company's filings with the Securities and Exchange Commission (SEC) over the past 12 months, copies of which are available from the SEC or may be obtained upon request from the Company. The forward-looking statements contained herein represent the Company's judgment as of the date of this release, and the Company cautions readers not to place undue reliance on such statements. 19 -----END PRIVACY-ENHANCED MESSAGE-----