-----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, AtVCJRxjm3fk+FUX2T8hJJK36T04cP/b1bpEAYK4dOXdg8Y2ghrnXeuUNB2ENfhy fUpDynFPyvCtiJdwOGnudQ== /in/edgar/work/0000891554-00-500125/0000891554-00-500125.txt : 20001024 0000891554-00-500125.hdr.sgml : 20001024 ACCESSION NUMBER: 0000891554-00-500125 CONFORMED SUBMISSION TYPE: 10KSB/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20001023 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WCM CAPITAL INC CENTRAL INDEX KEY: 0000215913 STANDARD INDUSTRIAL CLASSIFICATION: [1040 ] IRS NUMBER: 132879202 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB/A SEC ACT: SEC FILE NUMBER: 000-09416 FILM NUMBER: 744228 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 10KSB/A 1 d23839_10ksb-a.txt FORM 10KSB/A 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 12/31/99 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.) 76 Beaver Street, New York, New York 10005 (Address of principal executive offices) Issuers 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 $ 7,912,602 State the number of shares outstanding of each of issuers' class of common equity, as of the latest practical date. 1,318,767 as of March 15, 2000 DOCUMENTS INCORPORATED BY REFERENCE IN PART III - SIX Transitional Small Business Disclosure Format (check one) Yes___ No _X_ PART I TABLE OF CONTENTS PAGE Item 1 Description of Business 03 Item 2 Properties 07 Item 3 Legal Proceedings 15 Item 4 Submission of Matters to a Vote of Security Holders 19 PART II Item 5 Market for Registrant's Common Equity and Related 21 Stockholder Matters Item 6 Management's Discussion and Analysis or Plan 22 of Operation Item 7 Financial Statements F-1/F-29 Item 8 Changes in and Disagreements with Accountants 28 on Accounting and Financial Disclosure PART III Item 9 Directors, Executive Officers, Promoters, and Control 28 Person; Compliance with Section 16(a) of the Exchange Act Item 10 Executive Compensation 30 Item 11 Security Ownership of Certain Beneficial Owners 30 and Management Item 12 Certain Relationships and Related Transactions 31 PART IV Item 13 Exhibits, Reports on Form 8-K 34 Signatures 37 -2- 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"). While none of its properties were operational in fiscal year 1999, the Company continues its rehabilitation of the property in anticipation of the 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 (1) The Franklin Mining Properties During fiscal year 1998 and 1999, no exploration activities were conducted at the Franklin Mine. However, the Company continued its rehabilitation program and reclamation program in anticipation of commencing operations. Specifically, the Company continued with its water monitoring programs and commissioned additional reports and research into claims located on the mining property. The Company has through fiscal year 1999, and will continue, through fiscal year 2000, to take steps toward bringing the Franklin Mine and Mill into operation. -3- 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. The Company believes that upon the institution of a paste backfill system, it will have adequate capacity for tailings disposal should mining operations commence. However, should additional tailings disposal areas be required, the Company may make application to the DMG to reopen the lined tailings ponds recently reclaimed. In addition, the Company has instituted an environmental protection plan containing emergency response plans for designated chemicals 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. Throughout 1999, inspections of the Franklin Mining properties revealed that certain reclamation 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 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, and commenced operations. 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. 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 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. -4- 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. 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. The Company expects that its application will be approved in the third quarter of 2000. The Company has not conducted any commercial mining operations and, as a result, had not generated any significant revenues through December 31, 1999 from operations at the Franklin Mine. Therefore, the Company remains in the exploration stage. The Company, however, is hopeful that an economically viable commercial mining operation at the Idaho Springs mining facilities can be conducted in the future if exploration is successful, however, given the current economic climate, it is unlikely that the Company will commence exploration in the year 2000. The Companies will continue to work closely with the Federal and Colorado state mining regulatory agencies as required by law. (2) Newmineco and the Mogul Mine On September 26, 1996, the Company acquired a 20% interest in Newmineco from Gems & Minerals Corp., a former joint venture partner of the Company ("Gems") for a purchase price of $600,000 evidenced by an interest only note bearing interest at 9.5% per annum (the "Newmineco Note"). Newmineco was formed for the purpose of exploiting certain rights to a mining property known as the Mogul Mine evidenced by a Lease dated March 18, 1996, entered into between Island lessor/optionor as to the Muscat Lode claim only) as lessor (the "Rugg/Mogul Lease"). The Rugg/Mogul Lease was contributed to Newmineco prior to the acquisition by the Company of 20% of the LLC. The Company continues to maintain its interest in Newmineco but has been informed that the LLC has abandoned its plan to participate in the exploration of the Mogul Mine and no longer possesses the leasehold interest evidenced by the Rugg/Mogul Lease. (3) The Gold Hill Mill In 1996, the Company acquired the Gold Hill Mill in hopes of increasing its milling capacity to mill minerals extracted from the Franklin Mines and other mining properties in the region. However, in 1997, it became clear that the regulatory climate made it economically unfeasible to bring the Gold Hill Mill into operation. Recent changes in the laws governing milling and mining in Boulder County restrict the use of milling facilities located in Boulder County to processing minerals recovered within the county only. These legal changes prohibited the Company from using the Gold Hill Mill for processing mineralized rock from the Franklin Mines. Therefore, on or about June 5, 1998, the Company sold the Gold Hill Mill to Denver East Machinery Company ("Denver East") for an aggregate purchase price of $1,075,000. Payment of the purchase price was made by transferring certain property and equipment owned by Denver East having a fair market value of $725,000 a demand note in the aggregate principal amount of $350,000 which was payable to Denver East by Com, Inc., an affiliate of Gems (the "Denver East Note"). The Denver East Note is payable and accrues -5- interest at a rate of 14% per annum. As of the date hereof, the Company has not made demand for payment under the terms of the Denver East Note nor does the Company expect to ever collect on such note due to the Borrowers lack of funds. 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. See Proposal 1 - The Acquisition. Water, Utilities and Refining Contracts The Company has historically purchased power from Public Service Company of Colorado at its published rates. Moreover, the Company's management believes that sufficient water for present and future operations may be obtained from the City of Idaho Springs at its normal rates or from other nearby sources at reasonable rates. The Company's management does not anticipate any difficulty in obtaining sufficient water and power sources for its future mining and milling operations. In the past, the Company has entered into refining agreements with Zinc Corporation of America and ASARCO Incorporated for the sale and refining of lead, zinc and copper concentrates produced from the Franklin Mine in Colorado. The Company's management expects that at such time as it recommences active mining and milling operations, the Company will not have difficulties in renewing or renegotiating contracts with either ASARCO or Zinc Corporation of America or entering into new contracts with their competitors. 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. However, 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. With respect to operations at the Franklin Mines and Franklin Mill, technical personnel and other qualified consultants and experts are retained on a contract or consulting basis as needed. Management anticipates that as the -6- Company's business develops, additional technical administrative staff may be hired as well as qualified geological and technical consultants on an as needed basis. 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. Cyanidation and Pulp Recovery The process by which gold is extracted in the milling process through the use of cyanide. 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. Gravity Concentration Minerals concentrated by application of devices employing the force of gravity. 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. Laramide Period A period in history dating back approximately 70 to 90 million years ago. Main Trunk A highly mineralized portion of the J.L. Emerson fault located on the properties constituting the Franklin Mines. -7- Massive Sulfides High quality ore. 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. Mine Workings The areas where minerals are being mined. Mineral Concentrate A mill product where the rock particles have been removed from the metallic minerals. Mineralized Material A mineralized body which has been delineated by or Deposit 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. Mineralized Rock Rock which contains the minerals to be mined. Mineralized Material Rock in which metallic mineralization is present but may not exist in economic concentration. Autoclave A smelter devise which oxidizes sulfides at a high temperature (roasting) leaving gold contained amendable to Cyanidation. Monzonite Intrusive rock types containing large Amounts of quartz and often the progenitor of metallic, mineralizing solutions. Ore A metallic or non-metallic mineral that can be mined from the earth and sold at a profit. Ore Conduit An opening through which mineralizing solutions can rise. Ore Reserves Minerals located in the ground whose existence is governed by varying degrees of probability. Ore Shoot A body of ore. -8- 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. Pegatites A type of rock found in the Franklin Mine. 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. Production Shaft The device through which mineralized material is hoisted from the mine and the area through which materials are lowered into the mine and miners enter and exit the mine. 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. Refractory A difficulty in separating value metals or minerals from the host rock. 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. -9- Schist, granite gneiss A type of rock found in the Franklin Mine. Selective Flotation Minerals concentrated in a selected mineral group in the mill. Shaft A vertical tube-like opening whereby miners enter the mine. Slurry A mixture of ground rock or minerals in water. Slimes Exceedingly fine particles mixed with water. 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 arsenic, often containing large amounts of 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 covering less than 100% of the mineral rights comprising approximately 20 additional acres, for a total of 51 claims over 340 acres. The Franklin -10- 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 was also required to pay taxes and certain other expenses relating to the properties leased. Except with respect to the property leased under the Hayden /Kennec Leases, the Company does not intend to exploit any claims for which it holds less than a 100% interest. 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 the property including any tax liabilities. 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. 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. On November 13, 1997, just prior to the expiration 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 previously contracted to sell her interest to Gems & Minerals Corp., the Company: a former joint venture partner, however, Gems was unable to consummate the purchase in accordance with the terms of their Agreement. 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 and the importance of maintaining an interest in the mineral rights as they represent over 50% of the mineral claims available to the Company for exploration and development. It was then agreed that USM would negotiate with Mrs. Hayden to acquire her interest. 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 which extended the Hayden/Kennec Leases with respect to the Hayden Interest until March 13, 1998 and which required USM to continue to pay the royalty payments of $1,000 per month required thereunder until the sale was consummated. As of the date hereof, USM has not consummated the purchase of the Hayden Interests; 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, 2000. The Company has also been advised by USM that all royalty payments have been paid and will continue to be paid until the sale is consummated or the Purchase Agreement is terminated. Since November 1997, USM has paid royalty payments to Mrs. Hayden of approximately $25,000 through December 31, 1999. With respect to the 50% interest currently owned by Mrs. Kennec (the "Kennec Interest"), upon the expiration 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 and there can be no assurance that the Company will reach any further Agreement with Mrs. Kennec regarding the Kennec Interest. While there can be no guarantee that the -11- Company's failure to come to Agreement with Mrs. Kennec regarding her interest will not have an adverse impact on the Company's ability to exploit the mineral rights evidenced by the Hayden/Kennec Leases, Gems had received an opinion of counsel from Freeborn & Peters, that Colorado Law would permit the exploitation of the mineral rights 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 and the Company has continued to acquire USM, the Company is hopeful that its inability to come to an Agreement with Mrs. Kennec with respect to the Kennec Interest will not preclude the Company from commencing mining operations. 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. From Idaho Springs, a county maintained gravel road connecting Idaho Springs with Central City in Gilpin County passes within 1/4 of a mile of the Franklin Mine facilities and offices. A minor roadway, also maintained by the County, allows access to the Franklin Mine within 1/8 of a mile. The mine location is accessible year round, except in the case of a major snowstorm in winter months. Ore Deposition 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. The Idaho Springs and Central City Mining District Both the Idaho Springs and Central Mining Districts were discovered around 1860 and by 1900 were old mining districts. It has been estimated that these areas combined to produce in excess of five million ounces of gold and substantial amounts of silver, copper, lead and zinc during this period. Mining ceased in both districts around 1920. However, the United States Geological Survey indicates that the base of the mineralization has not been found in either of these mining districts. This means that the mineralization in the veins found throughout this region may continue to great depth and with modern mining techniques, stainless steel water pumps and better mining engineering it is possible that may of the mines that helped produce the five million ounces of gold in the last century can economically be opened and ore mined to greater depths. -12- There are at least four other mining properties being sought in the Idaho Springs, Central City mining district that may be available for purchase, joint venture or lease. The Company has been advised that two of these properties are located within three miles of the Franklin Mining properties. Currently, however, there is only one active mine in this area. The Company believes there is development potential in the Idaho Springs Central City mining district that may, if exploration is successful be a source of ore for the Franklin Mill. The Company is hopeful that nearby properties can be obtained and, combined with the Franklin Mines and, if exploration of these properties is successful and ore proven to exist, such mineralized material be processed at the Franklin Mill. 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). 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 Reserves of 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 accredited 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 -13- 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. There is no assurance that reserves exist in the Franklin Mine system. A core-drilling program and a comprehensive economic evaluation will be required to determine economic feasibility. Operations During the years 1998 and 1999, the Company continued reclamation and rehabilitation of its properties in Idaho Springs in the anticipation of more detailed evaluations of its resource. The Company also continued to seek custom milling business from small operators in the general area. The Company's initial plan is to core drill an area located on the 5 level of the Freighters Friend Shaft where mineralized material is believed to exist. Management believes that an initial capital requirement for core drilling is approximately $500,000. To bring the mill into operating condition is believed to require $750,000. USM has verbally pledged to continue to provide financing to the Company on an as needed basis through December 31, 2000: this financing is in addition to the USM Advances made in 1998 and 1999. Other alternatives such as private placements, loans, or public offerings may be considered for future operating capital. It is important to be aware that mining is a regulated business and compliance with regulatory requirements of the various agencies having jurisdiction over the Company's activities can cause delays in the schedules set by the Company for the installation of its facilities and performance of its reclamation and remediation work. Moreover, regulatory requirements may require capital outlays in excess of those anticipated; thus adversely affecting the scope and timing of planned operations. Mill/Metallurgy The Franklin Mill was designed to recover and concentrate metallic minerals by two methods; selective flotation and, gravity by table and jig. Both systems have been operated in a continuous circuit. After a series of upgrades in 1982, the Franklin Mill has a processing capacity (operating for a 24 hour period) of approximately 150 tons. In the past, the Franklin Mill operated on an eight-hour schedule and processed approximately 30 tons of minerals during that time interval. The Franklin minerals are refractory and therefore difficult to separate. Pyrite (iron sulfide) constitutes approximately 23% of the weight of the minerals. Approximately 35% of the gold content of the minerals remains locked in the pyrite as refractory gold and is not recoverable by ordinary means. Standard milling procedures are considered for any possible future operations: selective flotation of a) lead, silver, gold and b) zinc and c) gravity concentration of gold bearing pyrite. Gold bearing pyrite (refractory gold) concentrates would be shipped to a copper smelter or to an autoclave Lead and silver and free gold would go to lead smelter, zinc to a zinc smelter. -14- 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. Offices of the Company The Company maintains its executive offices, consisting of approximately 500 square feet, at 76 Beaver Street, Suite 500, New York, New York. 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. The Company also maintains an office on site at the Franklin mine in Idaho Springs. The Company's management anticipates this space will service the Company's needs for the foreseeable future and that, in the event such space should become unavailable in the future, the Company will be able to lease other suitable facilities on a reasonable basis. 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. 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 -15- 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. Golder Litigation On or about February 5, 1996, Bradley, Campbell, Carney & Madsen, P.C., Colorado counsel to the Company, Gems, Zeus and Newmineco ("BCCM") entered into a contract with Golder Associates, "Mogul Tunnel Contract"). At the time of the Mogul Tunnel Contract, BCCM allegedly entered into said contract as an agent of Durango, the lessee of the Mogul Mine at that time. On or about February 5, 1996, BCCM entered into a second contract with Golder, pursuant to which Golder agreed to perform certain services at the Franklin Mines and Franklin Mill pertaining to various environmental issues (the "Franklin Mines Contract"). At the time of the Franklin Mines Contract, BCCM allegedly entered into said contract as an agent of the Zeus Joint Venture. On or about August 23, 1996, Gems executed a note to Golder in the aggregate principal amount of $268,683.75 and a note to BCCM in the aggregate principal amount of $109,785.35 to secure legal and engineering fees outstanding as of such date. Each note was due and payable on or before December 23, 1996 and was secured by a pledge of approximately 144,000 as adjusted shares of Common Stock of the Company owned by Gems. Gems failed to make the required payments on the note by December 23, 1996. On or about January 28, 1997, Golder commenced an action against BCCM, Zeus, the Company, Gems, Island, and Durango in the United States District Court of the District of Colorado to recover sums due and owing from the Defendants for breach of contract, breach of implied warranty, misrepresentation, negligent misrepresentation, default under the Golder note and quantum merit arising out of each of the Mogul Tunnel Contract and the Franklin Mine Contract. The Company is a named defendant to this litigation by virtue of its participation in the Zeus joint venture, it being joint and severally liable with Gems and Nuco as general partners in the Joint Venture. -16- The aggregate amount of the Golder claims are approximately $281,670.99 plus prejudgment and post judgment interest, costs and expenses (including attorney's fees) and any additional relief granted by the court, $124,159.87, exclusive of interest and other costs and expenses, of which is attributable to the Mogul Tunnel Contract and $157,511.12, exclusive of interest and other costs and expenses, of which is attributable to the Franklin Mines Contract. The parties settled this matter in September 1999 and the litigation was discontinued, at no cost to the Company. Environmental Matters As of the date hereof, the Company has no formal 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 the conditions set forth in its permit approval or that future violations will not arise and that such violations will not lead to interruptions in operations at the Franklin Mines or Franklin Mill. NASDAQ Delisting In 1996, the Commission approved certain amendments to the requirements for continued listing on the NASDAQ Small-Cap Market. On February 27, 1998, the Company received a notification letter from NASDAQ informing the Company that the Company's Common Stock was not in compliance with the new minimum bid price requirement of $1.00, which became effective on February 23, 1998. The Company was given until May 28, 1998 to come into compliance or it would face delisting proceedings. On or about May 21, 1998, the Company effectuated a 25 for 1 reverse stock split which, when consummated, caused it stock price to rise above the $1.00 threshold. Therefore, the Company was not subject to delisting proceedings and remained in compliance until November 1998. On or about November 10, 1998, the Company received notification from NASDAQ that it was not in compliance with the minimum bid price requirement and had until February 10, 1999 to come into compliance. During the month of January, the Company's stock price maintained a bid price above $1.00 for 10 consecutive days, thereby bringing it into compliance with NASDAQ rules. On or about June 9, 1999, the Company received notification from NASDAQ that it was not in compliance with the minimum bid price requirement and had until September 9, 1999 to come into compliance. During the middle and latter part of June, the Company's stock price maintained a bid price above $1.00 for ten consecutive days but subsequently dropped below $1.00. On September 17, 1999 NASDAQ notified the Company that it would delist the Company's Common Stock from the NASDAQ SmallCap Market on September 24, 1999. The Company appealed this decision before a NASDAQ Listing Qualifications Panel whereby the panel required the Company to effectuate a reverse stock split of three-for-one as a condition for continued listing. The Company complied with the condition on or about December 17, 1999. On January 11, 2000 NASDAQ informed the Company that the Company's stock was now in compliance with the requirements for continued listing and that the stock would continue to be listed. -17- While the Company is currently in compliance with the minimum bid price requirement, there can be no assurance that in the future the company's common stock will, in the future be able to maintain such compliance. In the event that the Company cannot maintain compliance with the maximum bid price requirement the Company, may, in the future, be subject to delisting causing the Company's common stock to no longer be listed for trading on the NASDAQ Small Cap Market. However 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. 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. -18- 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. Redstone Litigation On or about May 14, 1998, Redstone Securities Inc. ("Redstone") commenced an action against the Company in the Supreme Court of the State of New York, County of Nassau, Index No. 98-013668, claiming, among other things, breach of contract, fraudulent inducement, and unjust enrichment in connection with an Investment Banking Agreement dated August 28, 1996, between Redstone and the Company. The complaint requests relief in the amounts of not less than $600,000 plus punitive damages, costs, interest and other expenses. On or about July 31, 1998, the Company answered the complaint and filed a cross complaint against Redstone alleging, among other things, abuse of process, fraud, breach of fiduciary duty, breach of contract and interference with prospective financial advantage. 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 Mr. Joseph Martelli an unaffiliated third party. Item 4. Submission of Matters to a Vote of Security Holders On May 21, 1998, 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 twenty-five for one basis. Of the 3,955,173 shares entitled to vote at the meeting, and before giving effect to the three-for-one reverse split in December 1999, 2,458,623 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 we filed with the Secretary of State of Delaware on October 16, 1998. On October 12, 1998, the Company held its annual meeting of shareholders in New Jersey at which time the shareholders (i) re-elected Mr. Waligunda and elected William C. Martucci, Ronald Ginsberg and Robert W. Singer to the Board of Directors of the Company (ii) approved an amendment to the Certificate of Incorporation to change the name of the Company to "WCM Capital, Inc." and (iii) confirmed Lazar, Levine & Felix as independent auditors of the Company. Of the 3,955,169 shares entitled to vote at the meeting, 2,458,623 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 As a Director 2,411,706 46,917 ---------- Election of Robert Waligunda as Director 2,443,750 14,873 ---------- Election of Ronald Ginsberg as a Director 2,411,718 46,905 ---------- Election of Robert W. Singer as a Director 2,411,714 16,476 ----------
-19- Amendment to Certificate Of Incorporation for Name change 2,434,302 16,476 7,845 Confirmation of Independent Auditors 2,427,679 21,743 9,201
The Amended and Restated Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on October 16, 1998. 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
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. -20- 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. 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 1997 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; but has not been adjusted to reflect 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, 1997 $5.50 $4.00 June 30, 1997 $4.75 $4.00 September 30, 1997 $5.50 $4.00 December 31, 1997 $2.34375 $1.5625 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* - --------------- * Takes into account one for three reverse split effective December 20, 1999 As of December 31, 1999, 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 1,318,767 as of March 15, 2000. 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. -21- Sales of Restricted Securities In consideration of the extension of the Kennec portion of the Hayden Kennec Leases, the Company issued to Dorothy Kennec, 1,387 (as adjusted) shares of the Company Common Stock in April 1997. The stock was valued at $9.375 per share as adjusted having an aggregate value at the time of the extension agreement of $13,000. The common stock issued to Mrs. Kennec was issued as further consideration for the extension of the terms of the Hayden/Kennec Lease. The Company issued the common stock in reliance upon the exemption contained in Section 4(2) of the Act. Mrs. Kennec is the 50% owner of the certain of the properties comprising the Franklin Mines that the Company has leased for over 20 years. No offering of common stock was made to any persons other to Mrs. Kennec. As a result of her relationship to the Company, Mrs. Kennec had access to all information regarding the Company, including all documents, public records, books, and accounts of the Company and was able to ask questions of and receive answers from representatives of the Company regarding the same. Mrs. Kennec understood the risk inherent in an investment in the Company, was acquiring the stock for her own account, not with a view of distribution thereof, and thoroughly understood and was willing to bear all the risks related to ownership of the Company's securities. On September 26, 1996, the Company acquired a 20% interest in Newmineco from Gems for a purchase price of $600,000 evidenced by an interest only note bearing interest at 9.5% per annum. On February 10, 1997, the Company made its election to convert the amounts owing on the Newmineco Note into Common Stock of the Company at a conversion price of $5.85 per share (after giving effect to adjustment to the price of the stock subsequently made as a result of reverse stock split). The Company issued to such holders an aggregate of 102,564 (as adjusted) shares of Common Stock of the Company in full satisfaction of the Company's obligations under the Newmineco Note. The shares were issued in accordance with an exemption from registration afforded by Section 4(2) under the Act. 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, 1999 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 at leased properties in or near Idaho Springs, Colorado. During 1998 and 1999, remediation work was performed and completed at the Franklin Mines and the Franklin Mill in preparation for the commencement of mining operations at the Franklin Mines. The Company has not commenced commercial operations at the Franklin Mine since its inception. Therefore, the Company remains in the exploration stage and has not generated significant revenues on a -22- sustained basis since its inception. The Company did not realize any revenues based on sales in 1999 and 1998. Since the abandonment of its participation in Newmineco, the Company will no longer recognize income or losses based on its proportionate equity interest in these entities. The Company is entitled to receive 100% of the potential income generated from the Franklin Mines, if any, once production is commenced less any royalty payments due to Mrs. Kennec with respect to the mineral rights owned by her. Liquidity and Capital Resources Since its inception, the Company has financed its operations principally through equity and debt and monies provided through its relationship with USM during 1998 and 1999. The Company has derived no income from its mining and milling investments, which, as of December 31, 1999, were comprised of investments in the assets and rights related to the Franklin Mines and Mill. As of December 31, 1999, the Company had borrowed $1,470,295 from USM. The Company had total current liabilities as of December 31, 1999 of $2,553,200, including $1,470,295 constituting the principal balance of the USM Note, convertible debentures with a principal amount of $145,000 and other notes payable with a principal balance of $218,965. 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 1999 and expect to incur additional administrative expenses of approximately $20,000 per month plus interest in 2000. During 1999 and 1998, USM advanced approximately $278,000 and $237,000, respectively, on behalf of the Company. These monies were used to, among other things, pay 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 1997. USM has verbally pledged to provide financing to the Company on an as needed basis through December 31, 2000. The Company believes based on prior performance and the acquisition Agreement entered into in January 2000 that USM will fulfill its commitment to fund until December 31, 2000. It is anticipated that the funds received from USM will cover the general, administrative and other costs, which Management estimates will be approximately $20,000 per month for the year 2000. Management cannot assure however, that USM will provide $750,000 of funding which Management estimates will be needed to ready the Franklin Mine and Milling properties for the commencement of extraction and milling. Additional funding will be needed to ready the properties for operations and to support operations once mining and milling commence to finance operations as well as upgrade the processing facilities to allow for an increase in processing capacity. 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. 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. Presently, the Company is unable to make such payment; notwithstanding, -23- Management is optimistic that it will maintain its access to the leased mineral rights represented by the Hayden/Kennec Leases given the Purchase Agreement between Mrs. Hayden and USM. 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. 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 permit and properties will be dependent upon the provision of financing by USM; however, it cannot assure that USM will continue to finance the Company through December 2000. 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 and can receive cash flows from operations. Management believes that it has obtained all of the necessary environmental and regulatory Permits recently applied for. The Company has conducted no exploration activities during the first quarter of 2000; however, the Company continued its efforts to bring the site into compliance with groundwater regulations and stabilization of tailings ponds. During the first quarter 2000 the DMG requested that the Franklin Mining operation be placed on temporary suspension due to its lengthy period of dormancy (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). The Company responded immediately and filed the necessary application for Temporary Secession. (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. Thus, the Company's efforts have been focused on addressing these issues). The department has been in contact with the Company and a temporary suspension status is expected to be granted shortly. 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 2000. 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 $20,000 per month for the remainder of 2000. U.S. Mining Co. has 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 will cover the general, administrative and other costs approximated at $20,000 per month plus interest. Additional monies will be needed for exploration of the Franklin Mine and mineral properties. 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, 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. -24- Plan of Operations The Company has completed most of the actions required by the DMG and, for the remainder of fiscal 2000, the Company plans to (i) continue its rehabilitation and remediation work to maintain its properties and permit (ii) seek possible joint ventures with neighboring mines and (iii) work to secure additional funding for its operations. Should the Company be unable to complete all of the actions required by the DMG, or if additional work is required but not timely performed, the Company may face several violations by the DMG which can lead to a cease and desist order or, result in the loss of our mining permit. The Company believes that the best way for its 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. We believe that by acquiring a business or businesses that can generate revenues, we would be able to attract third party investment and possibly reinvest any profits in our mining businesses. In the event that the Company acquired additional working capital, the Company would commence a core-drilling plan to prove the existence of a commercial body of ore, however, there can be no assurance that funding will be available or an adequate quantity to undertake this project Results of Operations: 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. (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. -25- 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. 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. (e) 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. Results of Operations 1998 vs. 1997 The Company had no active mine operations during 1998. The Company had a net loss of $1,531,317 for 1998 as compared to a net loss of $1,908,475 during 1997. The decrease of $377,158 was attributable to an increase in general and administrative expense in 1998 of $274,230 and interest expense of $87,973, offset by the effects of a loss on the sale and/or write down of mining and milling and other property and equipment ($465,000 in 1998 and $1,200,000 in 1997) and a decrease in 1998 mine expenses and environmental remediation costs of $100,385. General and administrative expenses were $642,592 for 1998 as compared with $368,353 during 1997 due to increases in professional fees. In addition, the Company incurred a bad debt expense of $350,000 in 1998 in connection with a note receivable from the sale of the Gold Hill Mill. Interest expense was $123,127 during 1998 as compared to $33,334 during 1997 due to increased interest incurred in connection with the Company's notes payable. -26- Item 7. Financial Statements and Supplementary Data The index to Financial Statements appears on page F-1. -27- WCM CAPITAL, INC. (An Exploration Stage Company) - INDEX -
Page(s) ------- Report of Independent Auditors F - 2 Financial Statements: Balance Sheets, December 31, 1999 and 1998 F - 3 Statements of Operations, Years Ended December 31, 1999 and 1998 and Cumulative Period From December 1, 1977 (inception) to December 31, 1999 F - 4 Statements of Stockholders' Equity, Years Ended December 31, 1999 and 1998 and Cumulative Period From December 1, 1977 (inception) to December 31, 1999 F - 5 Statements of Cash Flows, Years Ended December 31, 1999 and 1998 and Cumulative Period From December 1, 1977 (inception) to December 31, 1999 F - 10 Notes to Financial Statements F-12/F-29
INDEPENDENT AUDITORS' REPORT To the Stockholders WCM Capital, Inc. New York, New York We have audited the balance sheet of WCM Capital, Inc. (formerly Franklin Consolidated Mining Co., Inc.) as of December 31, 1999, 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, 1998, which includes an accumulated deficit as of December 31, 1998 of ($15,700,041). 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, 1998 were audited by other auditors whose report dated April 13, 1999 on those statements 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. Those standards require that we plan and perform the audit to obtain reasonable assurance about 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, 1999, and the results of its operations and its 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, 1999, 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. EHRENKRANTZ STERLING & CO., LLC Certified Public Accountants Livingston, New Jersey March 28, 2000 WCM CAPITAL, INC. (An Exploration Stage Company) BALANCE SHEETS - ASSETS -
DECEMBER 31 ------------------------------ 1999 1998 ------------ ------------ CURRENT ASSETS: Cash $ -- $ -- ------------ ------------ TOTAL CURRENT ASSETS -- -- ------------ ------------ OTHER ASSETS: Mining, milling and other property and equipment, net of accumulated depreciation and depletion of $2,166,261 and $2,105,515 4,617,834 4,808,580 Mining reclamation bonds 137,016 134,602 ------------ ------------ $ 4,754,850 $ 4,943,182 ------------ ------------ - LIABILITIES AND STOCKHOLDERS' EQUITY - CURRENT LIABILITIES: Accounts payable and accrued expenses $ 689,049 $ 654,164 Payroll and other taxes payable 29,960 29,960 Convertible debentures 145,000 145,000 Notes payable - related companies and others 218,965 218,965 Note payable - U.S. Mining, Inc. 1,470,295 1,191,586 ------------ ------------ TOTAL CURRENT LIABILITIES 2,553,269 2,239,675 ------------ ------------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock, par value $.01 per share; 40,000,000 shares authorized; 1,318,767 shares issued and outstanding 13,188 329,598 Additional paid-in capital 18,390,360 18,073,950 Deficit accumulated during the exploration stage (16,201,967) (15,700,041) ------------ ------------ 2,201,581 2,703,507 $ 4,754,850 $ 4,943,182 See auditors' report and notes to financial statements.
F-3 WCM CAPITAL, INC. (An Exploration Stage Company) STATEMENTS OF OPERATIONS
Years Ended Cumulative December 31 December 1, 1977 ------------------------------ (inception) through 1999 1998 December 31, 1999 ------------ ------------ ------------------- REVENUES: Sales $ -- $ -- $ 876,082 Interest income 2,414 3,920 551,109 Other income -- 4,397 79,397 ------------ ------------ ------------ 2,414 8,317 1,506,588 ------------ ------------ ------------ EXPENSES: Mine expenses and environmental remediation costs 34,812 62,560 3,621,110 Loss on sale/write-down of mining and milling and other property and equipment 130,000 465,000 1,795,000 Depreciation and depletion 60,746 146,355 2,361,610 General and administrative expenses 233,829 642,592 6,482,206 Interest expense 144,953 123,127 1,286,432 Amortization of debt issuance expense -- -- 683,047 Equity in net (income) loss and settlement of claims of Joint Venture -- -- 1,059,971 Other (100,000) 100,000 419,179 ------------ ------------ ------------ 504,340 1,539,634 17,708,555 ------------ ------------ ------------ NET LOSS $ (501,926) $ (1,531,317) $(16,201,967) ============ ============ ============ BASIC LOSS PER COMMON SHARE $ (.38) $ (1.16)0 ============ ============ WEIGHTED AVERAGE SHARES OUTSTANDING 1,318,767 1,318,390 ============ ============
See auditors' report and notes to financial statements. F-4 WCM CAPITAL, INC. (An Exploration Stage Company) STATEMENTS OF STOCKHOLDERS' EQUITY Page 1 of 5
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 Non-cash - 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 3,500 35 262,465 -- -- 262,500 Issuance of common stock: Cash 7,706 77 557,923 -- -- 558,000 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. F-5 WCM CAPITAL, INC. (An Exploration Stage Company) STATEMENTS OF STOCKHOLDERS' EQUITY Page 2 of 5
Deficit Accumulated Additional During the Common Paid-in Exploration Treasury Shares Stock Capital Stage Stock Total -------- ---------- ----------- ----------- --------- ----------- 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 by: 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 by: Related parties 2,667 27 149,973 -- -- 150,000 Others 12 0 750 -- -- 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. F-6 WCM CAPITAL, INC. (An Exploration Stage Company) STATEMENTS OF STOCKHOLDERS' EQUITY Page 3 of 5
Deficit Accumulated Additional During the Common Paid-in Exploration Treasury Shares Stock Capital Stage Stock Total ------------- --------------------------------------------- --------------------------- Issuance of common stock: Cash 7,587 $ 76 $ 300,424 $ - $ - $ 300,500 Non-cash - related parties 2,133 21 79,979 - - 80,000 Non-cash - 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 Non-cash - 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 Net loss - - - (386,704) - (386,704) Purchase of 666 shares of treasury stock at cost - - - - (12,500) (12,500) ----------------------------------------------------------------------------- ------------- Balance, at 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 - others 3,782 38 33,828 - - 33,866 Non-cash -related parties 2,800 28 31,472 - - 31,500 Private placement: Cash 30,333 303 22447 - - 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 Commission on sale of common stock - - (1,500) - - (1,500) Compensation resulting from stock options granted - - 39,000 - - 39,000 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.
F-7 WCM CAPITAL, INC. (An Exploration Stage Company) STATEMENTS OF STOCKHOLDERS' EQUITY Page 4 of 5
Deficit Accumulated Additional During the Common Paid-in Exploration Treasury Shares Stock Capital Stage Stock Total -------- ----------- ----------- ----------- ------------ ---------- 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 - others 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 - others 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 Non-cash - related parties 161 2 604 -- -- 606 Non-cash - 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 common 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 - others 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 Non-cash - settlement of litigation 13,333 133 99,867 -- -- 100,000 Non-cash - 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
F-8 WCM CAPITAL, INC. (An Exploration Stage Company) STATEMENTS OF STOCKHOLDERS' EQUITY Page 5 of 5
Deficit Accumulated Additional During the Common Paid-in Exploration Treasury Shares Stock Capital Stage Stock Total --------- ------- ------------ ------------ ------------ ---------- 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 of loan from joint venture partner 42,667 427 498,773 -- -- 499,200 Repayments of 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 for: 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 of loan from joint venture partner 30,880 309 361,566 -- -- 361,875 Repayments of 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 for: Extension of lease rights 1,386 14 12,986 -- -- 13,000 Conversion of note payable 102,941 1,089 598,571 -- -- 600,000 Conversion of 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 ========= ======= ============ ============ ========== ============ See auditors' report and notes to financial statem
F-9 WCM CAPITAL, INC. (An Exploration Stage Company) STATEMENTS OF CASH FLOWS Page 1 of 2
Cumulative December 1, 1977 Years Ended (inception) December 31 Through 1999 1998 December 31, 1999 -------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (501,926) $ (1,531,317) $(16,201,967) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and depletion 60,746 146,355 2,361,610 Provision for bad debt -- 350,000 350,000 Write-down of mining and milling and other property and Equipment 130,000 200,000 1,530,000 Amortization of debt issuance expense -- -- 683,047 Loss on sale of equipment -- 265,000 265,000 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 (income) loss of joint venture -- -- 123,971 Other -- -- (7,123) Changes in operating assets and liabilities: Prepaid expenses -- -- -- Interest accrued on mining reclamation bonds (2,414) (3,921) (12,016) Accounts payable and accrued expenses 34,885 285,010 1,151,265 ------------ ------------ ------------ Net cash used in operating activities (278,709) (288,873) (6,560,919) ------------ ------------ ------------ 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
F-10 WCM CAPITAL, INC. (An Exploration Stage Company) STATEMENTS OF CASH FLOWS Page 2 of 2
Cumulative December 1, 1977 Years Ended (inception) December 31 Through 1999 1998 December 31, 1999 -------------------------- ------------------ 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 278,709 287,795 1,881,778 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 278,709 287,795 12,061,592 ------------ ------------ ------------ INCREASE (DECREASE) IN CASH -- (1,078) -- CASH, BEGINNING OF PERIOD -- 1,078 -- ------------ ------------ ------------ CASH, END OF PERIOD $ -- $ -- $ -- ============ ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA: Interest paid $ - ____ $ -- $ 299,868 ============ ============ ============ NON-CASH ITEMS:
During 1998: The Company sold its Gold Hill Properties with a book value of $1,340,000 for property having a fair market value of $725,000 and a note receivable of $350,000. A loss of $265,000 was recognized on the transaction. See auditors' report and notes to financial statements. F-11 WCM CAPITAL, INC. (An Exploration Stage Company) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 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 at December 31, 1999 and 1998, the Company has a cash balance of $0, an accumulated deficit of $16,201,967 and $15,700,041, respectively, current liabilities of $2,553,269 and $2,239,675, respectively, and a working capital deficiency of $2,553,269 and $2,239,675, respectively. The Company was in default on the payment of the principal balance and accrued interest on certain notes and debentures (see Notes 5, 6 and 7). 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 or environmental matters (see Note 8B), 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. U.S. Mining Co. ("USM"), has verbally pledged to provide financing to the Company on an as needed basis through December 31, 2000. The funds received 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 foreclose on the assets of the Company. Such foreclosure actions would have a material adverse effect on the future operations of the Company. Substantially all of the $4,617,834 of mineral properties and equipment included in the accompanying balance sheet as of December 31, 1999, 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. F-12 WCM CAPITAL, INC. (An Exploration Stage Company) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (a) Organization: WCM Capital, Inc. (formerly Franklin Consolidated Mining Co., Inc.) (the "Company") originally incorporated on December 1, 1976 under the laws of the State of Delaware, is engaged 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 (the "Franklin Mines"), (ii) the Franklin Mill, a crushing and flotation mill which is located on the site of the Franklin Mines (the "Franklin Mill"), and up until its sale on June 5, 1998 (iii) the Gold Hill Mill (see Note 2d), a fully permitted modern facility located in Boulder County, Colorado (the "Gold Hill Mill"). The Company is an exploration stage enterprise because it did not generate any significant revenues through December 31, 1999. 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. (b) 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. F-13 WCM CAPITAL, INC. (An Exploration Stage Company) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued): (c) Mining, Milling and Other Property and Equipment: Mining, milling and other property and equipment are recorded at cost. Costs incurred to acquire, explore, improve and develop mining and milling properties are capitalized and amortized in relation to the production of estimated reserves. Mine development expenditures incurred substantially in advance of production are deferred on an individual property basis until the viability of a property is determined. General exploration costs and costs to maintain the mineral rights and leases are expensed as incurred. Management of the Company 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 expensed as incurred. Depreciation of equipment is computed using the straight-line method over the estimated useful lives of the related assets. F-14 WCM CAPITAL, INC. (An Exploration Stage Company) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued): (d) 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. It was the Company's determination that due to certain restrictions associated with milling operations in Boulder County, Colorado, the Gold Hill Mill properties would not be placed into operation. On June 5, 1998 the Company sold its Gold Hill Mill Properties in exchange for property and equipment having a market value of $725,000 and a 14% note receivable of $350,000. As of December 31, 1998, (a) the $350,000 note was reduced to $0 and (b) a $200,000 impairment loss was taken against the $725,000 of equipment acquired. During 1999 an additional $130,000 impairment loss was taken against the Company's mining, milling and other property and equipment. (e) 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. (f) Environmental Remediation Costs: Environmental remediation costs are accrued based on estimates of known environmental remediation exposures. Ongoing environmental compliance costs, including maintenance and monitoring costs are expensed as incurred. F-15 WCM CAPITAL, INC. (An Exploration Stage Company) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued): (g) 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 utilizes 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 amount expected to be realized (see Note 9). (h) 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. Losses per share have been restated for prior periods to give effect to the reverse stock splits during 1999 and 1998 (see Note 10). (i) Fair Value of Financial Investments: The carrying amount of the Company's borrowings approximate fair value. (j) 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. F-16 WCM CAPITAL, INC. (An Exploration Stage Company) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 NOTE 3 - ACQUISITIONS OF MINING AND MILLING PROPERTIES: (a) Franklin Mines and Mill 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 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 commercial ore body. In 1983, the Company completed the Franklin Mill. (b) Joint Venture In February 1993, the Company entered into a joint venture arrangement with Island Investment Corp., a Nevada corporation ("Island"), pursuant to which the parties formed Zeus No. 1 Investments, a California general partnership (the "Joint Venture"). The Company had a 17.5% interest in the Joint Venture, and Island had the remaining 82.5% interest. The Joint Venture was formed to develop the Franklin Mines and related assets of the Company. In May 1993, Island assigned its interest in the Joint Ventures to Gems and Minerals Corp., ("Gems") a wholly owned subsidiary of Island. On July 15, 1996, Gems transferred 31.5% of its 82.5% interest in the Joint Venture to Nuco Ventures, Inc., a Delaware Company, and wholly owned subsidiary of Gems ("Nuco"). During 1997, Gem and Nuco's aggregate 82.5% interest in the Joint Venture was acquired by U.S. Mining, Inc., a New Jersey corporation ("USM"). USM assigned the acquired interest to the Company in exchange for the assumption by the Company of certain liabilities. Upon the acquisition of the 82.5% interest of the Joint Venture by the Company, the relationship with Gems was terminated and the Joint Venture was effectively dissolved. F-17 WCM CAPITAL, INC. (An Exploration Stage Company) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998
NOTE 3 - ACQUISITIONS OF MINING AND MILLING PROPERTIES (continued): In conjunction with these transactions, the Company: Acquired mine and mill improvements having a net book value of (See Note 4) $ 780,787 Eliminated the Joint Venture deficit of $123,971, after giving effect to equity in net income of Joint Venture of $9,249 for 1997 123,971 Eliminated a $458,567 liability which represented the remainder of a note and related accrued interest payable to a subsidiary of Gems in conjunction with the acquisition of the Gold Hill Mill 458,567 Eliminated a $229,204 receivable from Gems (229,204) Assumed notes payable - other of $87,000 and related accrued interest on these notes of $16,858 (see Note 5) (103,858) Assumed a liability of $408,482 payable to POS Financial, Inc. (See Note 7) (408,482) Assumed a liability of $20,255 associated with the Joint Venture less other items of $ 14,248 (6,007) --------- The net amount of $615,774 was credited to additional paid-in capital $ 615,774 =========
(c) Gold Hill Mill On July 3, 1996, the Company acquired the Gold Hill Mill from a wholly owned 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). (d) Mogul Mines On September 26, 1996, the Company acquired a 20% interest in Newmineco, an inactive company, by issuing a 9.5% note payable with a principal balance of $600,000. Newmineco represented that it held the exclusive mining rights related to the Mogul Mines in the Spencer Mountains of Colorado. Because of certain permitting and other problems in the Mogul Mines, the purchase price to the Company was reduced to $150,000 in 1996, and the investment was written down to zero as of December 31, 1997. F-18 WCM CAPITAL, INC. (An Exploration Stage Company) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 NOTE 4 - MINING, MILLING AND OTHER PROPERTY AND EQUIPMENT: Mining, milling and other property and equipment, consist of the following at December 31: 1999 1998 ---------- ----------- Machinery and equipment $1,617,220 $1,747,220 Mine and mill improvements (a) 5,071,065 5,071,065 Furniture and fixtures 11,714 11,714 Automotive equipment 84,096 84,096 ---------- ---------- 6,784,095 6,914,095 Less: accumulated depreciation and depletion 2,166,261 2,105,515 ---------- ---------- $4,617,834 $4,808,580 ========== ========== (a) Includes mine and mill improvements of $780,787 in connection with the termination of the Joint Venture (see Note 3). During the years ended December 31, 1999 and 1998, the Company expended $34,812 and $62,560, respectively on environmental remediation costs and mine expenses. F-19 WCM CAPITAL, INC. (An Exploration Stage Company) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 NOTE 5 - NOTES PAYABLE - RELATED PARTY AND OTHERS: Notes payable related party and others consist of the following at December 31, 1999 and 1998: 12% unsecured demand notes due to the Company's former President and his affiliated entity $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 (8% at December 31, 1999). (b) This principal amount represents four unsecured promissory notes. The Company assumed these obligations on November 25, 1997, as part of the acquisition from USM of the remaining interest in the Joint Venture (see Note 3). These notes were in default when assumed by the Company, and remain in default as of December 31, 1999. Interest is being accrued at 8%. Accrued interest on the above notes at December 31, 1999 and 1998 aggregated approximately $66,000 and $45,600 respectively. F-20 WCM CAPITAL, INC. (An Exploration Stage Company) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 NOTE 6 - CONVERTIBLE DEBENTURES AND OTHER CONVERTIBLE DEBT: The Company's convertible debt at December 31, 1999 and 1998 consists of: 12.25% convertible debenture originally due 12/31/94 $145,000 As of December 31, 1999 and 1998, the Company was in default with respect to the payment of the $145,000 principal balance of the debenture and accrued interest of approximately $84,000 and $67,000, 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 debentureholders 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 debentureholders (see Note 8c). In September 1996, the Company acquired its 20% interest in Newmineco by issuing a 9.5% note payable to Gems with a principal balance of $600,000. This note could be converted 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 had elected to convert the principal balance of the 9.5% note into 102,564 shares of common stock, as adjusted based on the conversion rate of $5.85, per share as adjusted. As a result of problems concerning permitting and various other issues related to the Mogul Mines, the purchase price was reduced to $150,000 on December 31, 1996 and to $-0- on December 31, 1997 (see 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 note that was payable to an affiliate of Gems by the Company. NOTE 7 - NOTE PAYABLE - RELATED PARTY: The Company had outstanding an 8% promissory note balance of $955,756, at December 31, 1997, which represents monies advanced 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 interests (see Note 3). 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 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 F-21 WCM CAPITAL, INC. (An Exploration Stage Company) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 NOTE 7 - NOTE PAYABLE - RELATED PARTIES (continued): the Company by USM during 1998 and 1999. The balance due on the note at December 31, 1999 aggregated $1,470,295 plus accrued interest of $198,745. The balance due on the note at December 31, 1998 aggregated $1,191,586 plus accrued interest of $91,950. 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. NOTE 8 - 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. On November 19, 1996, the Company entered into an amendment to the Hayden/Kennec Leases with Dorothy Kennec (the "Kennec Amendment"). Pursuant to the terms of the Kennec Amendment, Kennec agreed to extend the term as it relates to her portion of the leasehold rights through November 12, 1997. In consideration for such extension, the Company agreed to increase the royalty payment due to Kennec under the original Hayden/Kennec Leases from $1,000 to $2,000 per month and to issue to Kennec 1,387 shares of the common stock of the Company valued at $9.37 per share as adjusted, having an aggregate value of $13,000. All of the payments made under the Kennec Amendment plus the value of the shares issued thereunder are to be further applied against the buy-out price of the property under the original Hayden/Kennec Leases. The 1,387 shares of common stock were issued on April 9, 1997. To further secure the Company and the Joint Venture, Gems entered into an agreement on December 21, 1995 to purchase Hayden's interest thereto (the "Hayden Interests") for a purchase price of $75,000. Gems made an initial payment of $5,000 to Hayden and the remainder of the purchase price was to be paid on or prior to the expiration date of the Hayden/Kennec Leases. Gems advised the Company that under Colorado law, if an owner F-22 WCM CAPITAL, INC. (An Exploration Stage Company) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 NOTE 8 - COMMITMENTS AND CONTINGENCIES (Continued): of 50% of mineral rights desired 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, Gems informed the Company that it believed that with the acquisition of the Hayden interest, together with the portion of the Hayden/Kennec Leases owned by Kennec, the Company and the Joint Venture would have adequate access to the minerals during the remainder of the term of the Hayden/Kennec Leases on a continuing basis. On November 12, 1997, Gems had failed to comply with the terms of the Hayden/Kennec-Gems Purchase Agreement. 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 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 extend the Hayden/Kennec Leases upon the same terms and conditions currently in effect through March 13, 1998 (the "Extended Expiration Date"). As of December 31, 1999 USM had yet to receive clear title but continued to make Purchase Agreement extension payments. While the Company has extended the term of the Hayden/Kennec Leases, as amended through March 13, 1998, in the event that it shall expire or otherwise terminate, any improvements made on the property become the property of the lessor without any further compensation to the Company and the lessor would have to reclaim the property in accordance with the State of Colorado Division of Minerals and Geology (the "DMG") requirements in effect at the time of such expiration or termination. Thus, the likelihood that the Company would recover fixtures and other equipment on the property may be minimal. All royalty payments made under the Hayden/Kennec leases 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 $41,000 and $33,450 in 1999 and 1998, respectively. F-23 WCM CAPITAL, INC. (An Exploration Stage Company) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 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, 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: 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. During 1998, $100,000 of other expenses was accrued in connection with this litigation. Such accrual was reversed in 1999 when the litigation was settled. (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. F-24 WCM CAPITAL, INC. (An Exploration Stage Company) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 NOTE 8 - COMMITMENTS AND CONTINGENCIES (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 unaffiliated 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 (see 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. F-25 WCM CAPITAL, INC. (An Exploration Stage Company) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 NOTE 9 - INCOME TAXES: As of December 31, 1999, the Company had federal net operating loss carryforwards of approximately $13,500,000 available to reduce future federal taxable income, which, if not used, will expire at various dates through December 31, 2019. Changes in the ownership of the Company may subject these loss carryforwards to substantial limitations. The Company has offset the deferred tax asset 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 Tax Valuation Asset Allowance ------------ ---------- Balance at January 1, 1998, attributable to federal net operating loss carry forward $3,578,000 $3,578,000 Increase in federal net operating loss, year ended December 31, 1998 861,000 861,000 Write down of equipment received as part of Sale of Gold Hill 70,000 70,000 ---------- ---------- Balance at December 31, 1998 4,509,000 4,4509,000 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 ========== ==========
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, 1999 and 1998, 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). F-26 WCM CAPITAL, INC. (An Exploration Stage Company) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 NOTE 10 - STOCKHOLDERS' EQUITY (Continued): (c) Issuances of Common Stock From December 1, 1977 (inception) through December 31, 1999, the Company issued common stock for: Shares Amount ---------- ----------- 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 Repayment of related party loans 314,169 3,001,681 --------- ----------- 1,318,767 $18,403,548 ========== =========== NOTE 11 - SUBSEQUENT EVENTS On January 18, 2000, the Company, USM and USM's sole shareholder ("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 then issued and outstanding 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 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 F-27 WCM CAPITAL, INC. (An Exploration Stage Company) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 NOTE 11 - SUBSEQUENT EVENTS (Continued): 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 of the Securities and Exchange Commission ("Commission"). Upon approval of the proxy statement by the Commission the Company will submit the Transaction to its shareholders for approval. F-28 INDEPENDENT AUDITORS REPORT To the Board of Directors and Stockholders WCM Capital, Inc. We have audited the balance sheets of WCM Capital, Inc. (formerly Franklin Consolidated Mining Co., Inc.) as of December 31, 1998, 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, 1996, which includes an accumulated deficit as of December 31, 1996 of $(12,260,249). 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. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about 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 audits provide a reasonable basis for our opinion. In our opinion, based on our audit and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of WCM Capital, Inc., and the results of its operations and its 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 a development stage enterprise whose operations have generated recurring losses and cash flow deficiencies from inception and, as of December 31, 1998, 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 substantially dependent on outside funding for financing. 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. LAZAR LEVINE & FELIX LLP New York, New York April 13, 1999 F-29 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. 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 53 Current President and Treasurer Richard Brannon 50 Vice-President-Secretary George E. Otten 73 Vice President William C. Martucci 58 Director Robert W. Singer 52 Former Director Ronald Ginsberg 62 Former Director William Wishinsky 36 Director Casey Myhre 35 Director John R. Bruno 74 Former Director -28- 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. 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 Online, Inc. 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. RONALD GINSBERG Mr. Ginsberg was a director of the Company from October 26, 1998 to May 27, 1999 and is President of the Foodtown Supermarket Cooperative, headquartered in Edison, New Jersey. He is also Secretary and Director of Twin County Grocers located in Edison, New Jersey and Director of the New Jersey Food Council. Mr. Ginsberg attended Drexel Institute of Technology and Temple University. 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. -29- 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. JOHN R. BRUNO Mr. Bruno was a Director of the Company from September 30, 1999 through February 28, 2000. Since 1996, Mr. Bruno has been the president and founder of The Bruno Group, a division of the Keyes Martin Company, New Jersey public relations, and funding consultant. In October 1996, Bruno Associates merged with The Keyes Martin Company, a New Jersey advertising and marketing/public relations firm. The merger resulted in Keyes Martin, The Bruno Group, creating one of the largest multi-talented groups of funding and marketing/public relations' specialists in the State of New Jersey. From 1967 to 1997, John R. Bruno was President and Chief Executive Officer of Bruno Associates Inc. a public relations and funding company. ROBERT W. SINGER Mr. Singer served as a director of the Company from October 26, 1998 to October 4, 1999. Mr. Singer currently holds the position of Assistant Majority Leader in the New Jersey State Senate. Prior to being elected as a state Senator, he served three terms in the New Jersey Assembly. In this latter capacity, Mr. Singer was named Majority Whip, by his Colleagues and served as both Vice Chairman of the Commerce and Regulated Professions Committee and Community Development, Agriculture and Tourism Committee. Senator Singer has distinguished himself, among his national peers, for his ability to create environments where high technology and economic development can coexist with environmental priorities. Additionally, the Senator is Vice-President of Corporate Relations for Community/Kimball Medical Centers, and affiliate of the St. Barnabas Health Care System. 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, 1999; 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 1999. Item 10. Executive Compensation 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 1999. 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 -30- The following table sets forth the beneficial ownership of shares of the Company's common stock as of March 15, 2000 (giving retroactive effect to the three-for-one reverse stock split effected on or about December 20, 1999) 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) Ownership Robert L. Waligunda(3) 856(4) .06 George E. Otten(2) -0- -0- John R. Bruno(2) Richard Brannon(3) -0- -0- William C. Martucci(3) -0- -0- William H. Wishinsky(3) -0- -0- Ronald Ginsberg(2) -0- -0- Robert W. Singer(2) -0- -0- Casey Myhre(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 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"). 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. -31- 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. 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 -32- 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 Not. 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. 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 was 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 -33- 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 has filed a proxy statement with respect to the Transaction which is currently subject to a review by the staff. Upon approval of the proxy statement by the Commission the Company will submit the Transaction to its shareholders for approval. 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. However, we remain committed to acquiring USM. 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.) -34- 3.3 Amendment to the Certificate of Incorporation filed with the Secretary of State of Delaware on May 21, 1998. 3.4 Amendment to the Certificate of Incorporation filed with the Secretary of State of Delaware on October 16, 1998. 3.5 Amendment to the Certificate of Incorporation filed with the Secretary of State of Delaware on December 17, 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.) 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) -35- 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). 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 -36- 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 October 20, 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 October 20, 2000 Robert Waligunda and Director /s/ Richard Brannon - ------------------------ Vice President/Secretary October 20, 2000 Richard Brannon /s/ George Otten - ------------------------ Vice President October 20, 2000 George Otten /s/ William C. Martucci Director October 20, 2000 - ------------------------ William C. Martucci /s/ Ronald Ginsberg Former Director October 20, 2000 - ------------------------ Ronald Ginsberg /s/ Robert W. Singer Former Director October 20, 2000 - ------------------------ Robert W. Singer -37- -----END PRIVACY-ENHANCED MESSAGE-----