-----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, CDDJ1V9BYL7bta0EyW6Jdj3HT0KvhjyyG2oksmLjybJvBGKUfaJlRB2VNRUpHhmn ywuBDyglmgy0kHIr/sOn3w== 0000891554-98-001515.txt : 19981126 0000891554-98-001515.hdr.sgml : 19981126 ACCESSION NUMBER: 0000891554-98-001515 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981125 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WCM CAPITAL INC CENTRAL INDEX KEY: 0000215913 STANDARD INDUSTRIAL CLASSIFICATION: GOLD & SILVER ORES [1040] IRS NUMBER: 132879202 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-09416 FILM NUMBER: 98758911 BUSINESS ADDRESS: STREET 1: 76 BEAVER ST STREET 2: SUITE 500 CITY: NEW YORK STATE: NY ZIP: 10005 BUSINESS PHONE: 2123442828 MAIL ADDRESS: STREET 1: 76 BEAVER ST STREET 2: SUITE 500 CITY: NEW YORK STATE: NY ZIP: 10005 FORMER COMPANY: FORMER CONFORMED NAME: FRANKLIN CONSOLIDATED MINING CO INC DATE OF NAME CHANGE: 19920703 10QSB 1 QUARTERLY REPORT U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the Quarter Ended September 30, 1998 Commission File No. 0-9416 WCM CAPITAL, INC. (FORMERLY FRANKLIN CONSOLIDATED MINING CO., INC.) (Exact name of registrant as specified in its charter) Delaware #13-2879202 (State or other jurisdiction (I.R.S. Employer incorporation or organization) Identification No.) 76 Beaver Street, Suite 500, New York, New York 10005 (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area code (212) 344-2828 The Number of Shares Outstanding of Common Stock $.01 Par Value, at September 30, 1998 3,955,173 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports,) and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ___ WCM CAPITAL, INC. (Formerly FRANKLIN CONSOLIDATED MINING CO., INC.) (A DEVELOPMENT STAGE COMPANY) CONDENSED BALANCE SHEETS (Unaudited)
ASSETS September 30, December 31, 1998 1997 ------------ ------------ CURRENT ASSETS: Cash and cash equivalents $ -- $ 1,078 ------------ ------------ TOTAL CURRENT ASSETS -- 1,078 Note receivable, Com Inc. 365,653 -- Mining, milling and other property and equipment, net of accumulated depreciation and depletion of $2,094,436 and $1,959,160 4,674,659 5,424,935 Land - held for resale 345,000 345,000 Mining reclamation bonds 133,622 130,681 ------------ ------------ $ 5,518,934 $ 5,901,694 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses $ 569,091 $ 367,933 Payroll and other taxes payable 29,960 31,181 Convertible debentures 145,000 145,000 Notes payable - related party and others 250,000 167,000 Note payable - related party 1,115,364 955,756 ------------ ------------ TOTAL CURRENT LIABILITIES 2,109,415 1,666,870 ------------ ------------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock, par value $.01 per share; 100,000,000 shares authorized; 3,955,173 shares issued and outstanding 39,552 39,552 Additional paid-in capital 17,299,816 17,299,816 Deficit accumulated during the development stage (13,929,849) (13,104,544) ------------ ------------ 3,409,519 4,234,824 ------------ ------------ ($ 5,518,934) $ 5,901,694 ============ ============
See notes to condensed financial statements. 2 WCM CAPITAL, INC. (Formerly FRANKLIN CONSOLIDATED MINING CO., INC.) (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION) TO SEPTEMBER 30, 1998 (Unaudited)
Nine Months Three Months Ended September 30, Ended September 30, Cumulative ---------------------------- ---------------------------- from 1998 1997 1998 1997 Inception ------------ ------------ ------------ ------------ ------------ REVENUES: Sales $ -- $ -- $ -- $ -- $ 876,082 Interest income 18,593 2,855 13,230 903 563,368 Other income -- -- -- -- 75,000 ------------ ------------ ------------ ------------ ------------ 18,593 2,855 13,230 903 1,514,450 ------------ ------------ ------------ ------------ ------------ EXPENSES: Mine expenses and environmental remediation costs 52,796 -- 14,305 -- 3,576,534 Loss/write-down of mining and milling and other property and equipment 265,000 -- -- -- 1,465,000 Depreciation and depletion 135,276 90,000 71,769 30,000 2,289,785 General and administrative expenses 301,322 419,033 86,102 174,005 5,700,107 Interest expense 89,505 63,776 32,108 5,491 718,678 Amortization of debt issuance expense -- -- -- -- 683,047 Equity in net loss and settlement of claims of Joint Venture -- 11,541 -- 5,000 591,971 Other -- -- -- -- 419,179 ------------ ------------ ------------ ------------ ------------ 843,899 584,350 204,284 214,496 15,444,301 ------------ ------------ ------------ ------------ ------------ NET LOSS $ (825,306) $ (581,495) $ (191,054) $ (213,593) $(13,929,851) ============ ============ ============ ============ ============ BASIC LOSS PER COMMON SHARE $ (.21) $ (.15) $ (.05) $ (.05) ============ ============ ============ ============ WEIGHTED AVERAGE SHARES OUTSTANDING 3,955,173 3,919,598 3,955,173 3,955,173 ============ ============ ============ ============
See notes to condensed financial statements. 3 WCM CAPITAL, INC. (Formerly FRANKLIN CONSOLIDATED MINING CO., INC.) (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION) TO SEPTEMBER 30, 1998 (Unaudited)
Cumulative from 1998 1997 Inception ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (825,305) $ (581,495) $(13,929,851) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and depletion 135,276 90,000 2,289,787 Loss/write-down of mining, milling and other property and equipment 265,000 -- 1,465,000 Amortization of debt issuance expense -- -- 683,047 Value of common stock issued for: Services and interest -- -- 1,338,714 Settlement of litigation -- -- 100,000 Settlement of claims by joint venture partner -- -- 468,000 Compensation resulting from stock options granted -- -- 311,900 Value of stock options granted for services -- -- 112,500 Equity in net loss of joint venture -- 11,541 123,971 Other -- -- (7,123) Changes in operating assets and liabilities: Prepaid expenses -- 80,985 -- Interest accrued on mining reclamation bonds and notes (18,594) (2,855) (24,275) Accounts payable and accrued expenses 199,937 (125,955) 831,307 ------------ ------------ ------------ NET CASH USED IN OPERATING ACTIVITIES (243,686) (527,779) (6,237,023) ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases and additions to mining, milling and other property and equipment -- -- (5,120,354) Purchases of mining reclamation bonds, net -- -- (125,000) Deferred mine development costs and other expenses -- -- (255,319) ------------ ------------ ------------ NET CASH USED IN INVESTING ACTIVITIES -- -- (5,500,673) ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Issuances of common stock -- 63,500 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 -- 197,766 526,288 Advances to joint venture partner -- 266,438 (181,017) Payments of debt issuance expenses -- -- (164,233) Proceeds of other notes and loans payable 242,608 -- 1,557,882 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 242,608 527,704 11,737,696 ------------ ------------ ------------
(Continued) See notes to condensed financial statements. 4 WCM CAPITAL, INC. (Formerly FRANKLIN CONSOLIDATED MINING CO., INC.) (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION) TO SEPTEMBER 30, 1998 (Unaudited) Cumulative from 1998 1997 Inception -------- -------- --------- INCREASE (DECREASE) IN CASH $ (1,078) $ (75) $ -- CASH - beginning of period 1,078 127 -- -------- -------- -------- CASH - end of period $ -- $ 52 $ -- ======== ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA: Interest paid $ 3,889 $ -- $303,758 ======== ======== ======== See notes to condensed financial statements. 5 WCM CAPITAL, INC. (Formerly FRANKLIN CONSOLIDATED MINING CO., INC.) (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO CONDENSED FINANCIAL STATEMENTS SEPTEMBER 30, 1998 NOTE 1 - UNAUDITED INTERIM FINANCIAL STATEMENTS On October 13, 1998, the Company held its Annual Meeting of shareholders at which time the shareholders approve an amendment to its certificates of Incorporation changing the name of the Company to WCM Capital Corp. The name change was effective October 16, 1998. In the opinion of management, the accompanying unaudited condensed financial statements reflect all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial position of Franklin Consolidated Mining Co., Inc. (the "Company") as of September 30, 1998, its results of operations for the nine and three months ended September 30, 1998 and 1997 and cash flows for the nine months ended September 30, 1998 and 1997. Information included in the condensed balance sheet as of December 31, 1997 has been derived from the audited balance sheet in the Company's Annual Report on Form 10-KSB for the year ended December 31, 1997 (the "10-KSB") filed with the Securities and Exchange Commission. Certain terms used herein are defined in the 10-KSB. Accordingly, these unaudited condensed financial statements should be read in conjunction with the financial statements, notes to financial statements and the other information in the 10-KSB. The results of operations for the nine and three months ended September 30, 1998 are not necessarily indicative of the results of operations for the full year ending December 31, 1998. Prior years financial statements have been reclassified to conform with the current year presentation. NOTE 2 - BASIS OF PRESENTATION The accompanying financial statements have been prepared assuming the Company will continue as a going concern. However, the Company has had recurring losses and cash flow deficiencies since inception. As at September 30, 1998, the Company has an accumulated deficit of $13,929,849, current liabilities of $2,109,415, and a working capital deficiency of $2,109,415. Also, the Company was in default on the payment of the principal balance and accrued interest on certain notes and debentures. Certain accounts payable also were past due. In addition to the payment of its current liabilities, management estimates that the Company will incur general, administrative, and other costs and expenditures, exclusive of any costs and expenditures related to any mining and milling operations, at the rate of approximately $20,000 per month plus interest during 1998. Such matters raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that may result from the outcome of the above uncertainty. U.S. Mining Co. ("USM") and its affiliates have pledged to provide financing to the Company on an as needed basis until on or about January 1, 1999. The funds received from USM and its affiliates will cover the general, administrative and other costs approximated at $20,000 per month plus interest. Additional funds will be needed to ready the Franklin Mining properties for commencement of operations and to support the extraction and milling processes once underway as well as to upgrade the processing facilities to allow for an increase in ore processing capacity. There can be no assurance that the Company will have adequate funds available to repay the funds advanced by USM and its affiliates. In the event that the Company defaults on its obligations, USM may foreclose on the assets secured by the POS Note (as hereafter defined). Such foreclosure actions by USM would have a material adverse effect on the future operations of the Company and the Company's ability to explore the Franklin Mines. Substantially all of the $4,674,659 of mineral properties and equipment included in the accompanying balance sheet as of September 30, 1998, is related to exploration properties. The ultimate realization of the Company's investment in exploration properties and equipment is dependent upon the success of future property sales, the existence of economically recoverable reserves, the ability of the Company to obtain financing or make other arrangements for development, and upon future profitable production. 6 WCM CAPITAL, INC. (Formerly FRANKLIN CONSOLIDATED MINING CO., INC.) (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO CONDENSED FINANCIAL STATEMENTS SEPTEMBER 30, 1998 NOTE 3 - NOTES PAYABLE RELATED PARTY AND OTHERS Notes payable related party and others consist of the following at September 30, 1998: 12% unsecured demand note due to the Company's past President $103,000 Secured promissory note (a) 60,000 Unsecured promissory notes (b) 87,000 -------- $250,000 (a) The outstanding principal balance of the note became payable on July 18, 1996 and the Company is in default. The note is guaranteed by certain officers of Gems and is collateralized through a subordinated security interest in the Company's mining reclamation bond. Interest on the note is payable based on the rate of interest applicable to the mining reclamation bond. (b) This principal amount represents four unsecured promissory notes comprised of one $36,000 note and three $17,000 notes payable. These obligations were assumed by the Company on November 25, 1997, as part of the acquisition from USM of the remaining interest in the Joint Venture. These notes were in default when assumed by the Company, and remain in default as of September 30, 1998. Interest is being accrued at rates between 8% and 17% per annum. Accrued interest on the above notes at September 30, 1998 aggregated approximately $40,000, including $9,533 payable to the Company's President. NOTE 4 - CONVERTIBLE DEBENTURES The Company's convertible debt at September 30, 1998 consist of: 12.25% convertible debenture originally due 12/31/94 $145,000 As of September 30, 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 $62,000. As a result of its default, the Company may be subject to legal proceedings by the Transfer Agent/Trustee under the Indenture Agreement or from debenture holders seeking immediate repayment of principal plus interest and other costs. Management cannot assure that there will be funds available for the required payments or what the effects will be of any actions brought by or on behalf of the debenture holders. NOTE 5 - NOTE PAYABLE - RELATED PARTY The Company had outstanding a 8% promissory note balance of $1,115,364, at September 30, 1998, which represents monies advanced to the Company by POS Financial, Inc. ("POS"), and USM (the "POS Note") and obligations assumed in connection with the contributions of Joint Venture interests in 1997. The note was payable on May 4, 1998, and is secured by all the Company's mining claims and mining properties, as well as its interests in the Hayden/Kennec Leases. The note is subject to successive 30 day extensions throughout 1998 upon the mutual agreement of the maker and lender for no additional consideration. On March 5, 1998, POS assigned this note to USM. Both POS and USM are considered related parties because they can exert significant influence over the Company. Accrued interest at September 30, 1998 was approximately $69,000. 7 WCM CAPITAL, INC. (Formerly FRANKLIN CONSOLIDATED MINING CO., INC.) (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO CONDENSED FINANCIAL STATEMENTS SEPTEMBER 30, 1998 NOTE 6 - STOCKHOLDERS' EQUITY On May 26, 1998, the Company effected a twenty-five for one reverse stock split. The accompanying financial statements give retroactive effect to the reverse stock split. NOTE 7 - SALE OF GOLD HILL MILL PROPERTIES On June 5, 1998, the Company sold its Gold Hill Mill Properties for property and equipment having a fair market value of $725,000 and a 14% note receivable of $350,000. The note is payable on demand. The Company recognized a loss of $265,000 as a result of this transaction. NOTE 8 - COMMITMENTS AND CONTINGENCIES 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 104,000 shares of the common stock of the Company valued at $.125 per share, 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 104,000 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 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"). The Company is currently in negotiations to extend these interests, however, there can be no assurance that an extension will be granted or that the Company will not be subject to litigation with respect to the Hayden Kennec Leases. 8 WCM CAPITAL, INC. (Formerly FRANKLIN CONSOLIDATED MINING CO., INC.) (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO CONDENSED FINANCIAL STATEMENTS SEPTEMBER 30, 1998 NOTE 8 - COMMITMENTS AND CONTINGENCIES (Continued) 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. Environmental Matters On January 31, 1997, the Company received approval from the DMG of its March 6, 1996 amended application to its permit by obtaining the $252,000 bond required by the DMG from an independent bonding company in exchange for (i) the deposit by the Company of $125,000 in a trust account maintained for the benefit of the bonding company, (ii) guarantees from the Joint Venture partner and certain of its principals and (iii) the posting of a performance bond from an independent bonding company by one of the Joint Venture's contractors with respect to the completion of the technical and remediation work required by the regulatory authorities. As a result, management believes that substantially all of the necessary environmental and regulatory approvals have been obtained from DMG. The amended permit required among other things the submission of a final design for tailings disposal facilities, the installation of a Surface Water Control Plan previously approved by the DMG, the filing of an Environmental Protection Plan, and the completion of certain closure plans. As of September 30, 1998, the Company has no formal violations against it with respect to the Franklin Mines and Franklin Mill. However, 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. Litigation The Company is involved in various litigation as explained below: (a) The Company and others are defendants in the action related to a dispute over fees for engineering consulting services supplied in the amount of approximately $268,000. The Court has remanded the case to arbitration. The defendants plan to vigorously defend their position asserting that the work was never completed. An accrued liability of $35,000 which the Company estimates to be its portion of the total claim has been recorded in the accompanying financial statements. (b) In September 1997, certain of the Company's 12.25% Convertible Debenture holders instituted an action against the Company for payment of approximately $42,500 principal amount of its 12.25% Convertible Debentures plus accrued and unpaid interest totaling approximately $13,000 and other costs and expenses related thereto. The Company has answered the aforesaid complaint. (c) In May, 1998, a broker/dealer engaged to provide investment banking services to the Company instituted an action against the Company for, among other things, breach of contract, fraudulent inducement and unjust enrichment plaintiff broker/dealer is claiming damages of not less than $600,000 plus punitive damages, interest, costs and disbursements. The Company has answered the complaint and has asserted counterclaims against plaintiff claiming damages of approximately $6,000,000. An unfavorable resolution of these matters could result in material liabilities or charges that have not been reflected in the accompanying financial statements. 9 WCM CAPITAL, INC. (Formerly FRANKLIN CONSOLIDATED MINING CO., INC.) (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO CONDENSED FINANCIAL STATEMENTS SEPTEMBER 30, 1998 NOTE 8 - COMMITMENTS AND CONTINGENCIES (Continued) On November 10, 1998, the Company received notification from NASDAQ that, based upon their review of the price data covering the last thirty consecutive trade dates, the Company's common stock had failed to maintain a closing bid price of $1.00. In order to remain eligible for continued listing on the NASDAQ Small Cap Market, the Company must regain compliance with the minimum bid price requirement within 90 days from the date of the notification letter; the Company's securities would be subject to delisting, effective the close of business February 10, 1999. The Company would be considered to be in compliance with the minimum bid price rule if at any time prior to February 10, 1999, the shares of common stock of the Company reported a closing bid price of $1.00 or greater for 10 consecutive trading days. Management believes that, given past trends, the Company's Common Stock may not sustain trading for ten consecutive trading days at minimum bid price of $1.00 or more prior to February 10, 1999. In that event, the Company's Common Stock will be delisted and will no longer be traded on the NASDAQ Small Cap Market. However, Management is hopeful that, in the event of delisting, 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 likely event of a delisting by NASDAQ. NOTE 9. OTHER INFORMATION On or about August 3, 1998, the Company entered into agreements with each of USM (the "USM Agreement") and William Martucci (the "POS Agreement"). Pursuant to the USM Agreement, USM agreed to forgive indebtedness of the Company, which included the POS Note, release the security interest of USM in the assets of the Company securing the POS Note and assigning its rights to the Hayden-USM Purchase Agreement in exchange for 11,197,413 shares or 42.5% of the issued and outstanding shares of the Company. The Hayden-USM Purchase Agreement is for the purchase by USM of Hayden's 50% interest in the Hayden-Kennec Leases. Under the terms of the POS Agreement, Martucci agreed to sell to the Company 100% of the outstanding shares of POS in exchange for 11,197,413 shares or 42.5% of the issued and outstanding shares of the Company. POS owns and operates free standing ATM Kiosks located in retail outlets. As a condition precedent to the consummation of the transactions contemplated by each of the USM Agreement and the POS Agreement, the Company was required to obtain stockholder approval in a timely manner of such transactions. 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 full review of the proxy materials and underlying proposals. The Company informed USM and Martucci of the Staff's inquiry and was thereafter notified that USM and Martucci 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 POS Note and an additional $144,280 loaned to the Company subsequent to the date of the POS Note. The letter contained a settlement proposal to satisfy all amounts due and owing to USM. On September 25,. 1998, the Company responded to the USM letter with a counter proposal and thereafter the parties commenced active negotiations in an attempt to resolve this matter favorably. 10 WCM CAPITAL, INC. (Formerly FRANKLIN CONSOLIDATED MINING CO., INC.) (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO CONDENSED FINANCIAL STATEMENTS SEPTEMBER 30, 1998 NOTE 9. OTHER INFORMATION (Continued) At a meeting of the Board of Directors of the Company on October 8, 1998 a settlement agreement was approved whereby USM would convert the entire amount of the Company's indebtedness to USM into shares of common stock of the Company at a conversion price equal to 50% of the closing bid price as of the close of business October 7, 1998. The price of the Company's common stock at the close of business on October 7, 1998 was $.66 per share. Therefore, the conversion rate under the settlement agreement would be one share of common stock of the Company for each $.33 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 927,757 shares of common stock of the Company which would have resulted 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, or (ii) the issuance of a waiver by the NASDAQ Small Cap Market which would allow the Company to issue the shares without holding a special meeting of its stockholders, provided that the Company notify the shareholders 10 days prior to the issuance of the shares to USM. 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. 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 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. Although the Board of Directors of the Company has approved the issuance of 927,757 shares of common stock of the Company, such shares have not been issued. The Company however, continues to be in default of the POS Note and has not, as of the date hereof, repaid any of the amounts owed to USM. The Company and USM are continuing negotiations with respect to the outstanding monies owed to USM and USM is still funding the Company. As the above transactions have not been consummated, they have not been reflected in the Company's financial statement. 11 MANAGEMENT'S DISCUSSION AND ANALYSIS Liquidity and Capital Resources The Company had no active mining or milling operations during 1998, however, remediation work was substantially completed at the Franklin Mine and Mill in preparation for the anticipated commencement of mining operations sometime during the third quarter of this year. Management estimates that the Company will incur general, administrative and other costs and expenditures, exclusive of any costs and expenditures related to any mining and milling operations and interest, at the rate of approximately $20,000 per month for the remainder of 1998. U.S. Mining Co. and its affiliates have verbally pledged to provide financing to the Company on an as needed basis until on or about January 1, 1999. The funds received from USM and its affiliates to date were used to cover general, administrative and other costs of the Company. Additional funds will be needed to ready the Franklin Mine and Milling properties for the commencement of operations and to support the extraction and milling processes once underway as well as to upgrade the processing facilities to allow for an increase in ore processing capacity. There can be no assurance that the Company will have adequate funds available to repay the funds advanced by USM and its affiliates. In the event that the Company defaults on its obligations, USM may foreclose on the assets secured by the POS 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. In June 1998, the Company sold the Gold Hill Mill for property and equipment having a fair market value of $725,000 and a 14% note receivable of $350,000. While the Company incurred a $265,000 loss on the sale, management believes that the Gold Hill Mill had little prospect of becoming a viable asset due to the adverse regulatory climate in Boulder, Colorado. Other factors considered in the decision to dispose of the property included, on going costs of insuring the property, tax burdens, regulatory compliance costs and a lien on the property for $350,000 resulting from an obligation of the prior owners which was in default. All of these factors posed significant burdens on the Company's resources. Thus, management believes that it was in the best interest of the Company to dispose of the Gold Hill property and concentrate its efforts on the Franklin properties. Results of Operations: September 30, 1998 and 1997 The Company had no active mining or milling operations during the nine months ended September 30, 1998 and 1997. The Company had a net loss of $825,306 and $191,054 for the nine and three months ended September 30, 1998, respectively as compared to a net loss of $581,495 and $213,593 during the same periods in 1997. The 1998 nine month loss was higher due to a $265,000 loss on sale of the Gold Hill Mill Properties in 1998. General and administrative expenses were $301,322 and $86,102 for the nine and three months ended September 30, 1998 compared with $419,033 and $174,005 during the same periods in 1997. This decrease was due to cost controls implemented in connection with corporate overhead and SEC reporting and compliance. Interest income was $18,593 and $13,230 for the nine and three months ended September 30, 1998 compared with $2,855 and $903 during the same periods in 1997. Interest expense was $89,505 and $32,108 during the nine and three month periods ended September 30, 1998 as compared to $63,776 and $5,491 during the same periods in 1997. These changes were due to interest incurred on notes in connection with the Gold Hill Mill and Newmineco acquisitions payable to related parties in 1997 but not during 1998 offset by an increase in notes payable to related parties during 1998. 12 PART II Item 1. Legal Proceedings Convertible Debentures On June 1, 1994, the Company advised the Transfer Agent/Trustee that the Company was not in compliance with certain of the terms of the indenture (the "Indenture") relating to the Company's 12-1/4% Convertible Debentures (the "Debentures") in that it had not maintained current filings with the Securities and Exchange Commission (the "Commission") as required. Accordingly, the Transfer Agent/Trustee was instructed not to convert any of the Debentures into Common Stock of the Company until such time as the Company notified the Transfer Agent. The Company failed to make required sinking fund payments in 1994 and was unable to pay the principal balance of the Debentures due on December 31, 1994 resulting in a default under the terms of the Indenture. Although the Company was in default, it agreed to continue to make quarterly interest payments to the Debenture Holders during fiscal year 1995 until such time as the principal amount of the Debentures could be paid in full. It was anticipated that the Company would have the funds available to make such payments by December 31, 1995. The Company made the first quarterly interest payment due on the Debentures in 1995 but has failed to make any additional payments with respect to such interest as of the date hereof. In December 1995, the Company sent notices to the debenture holders requesting their consent to extend the maturity date of the Debentures to December 31, 1996. It was also contemplated that the conversion rights of such holders would also be extended at its current rate of $.50 per share. The Company also agreed that it would bring current all interest payments due and owing to such holders through December 31, 1995, prepay interest which will become due and owing at the end of the first quarter of 1996 and set up a fund with the Transfer Agent/Trustee to secure the timely payment of the principal amount of the Debentures on December 31, 1996. The Company set February 15, 1996 as the date upon which all Debenture Holders had to submit their consent forms to the Company indicating whether they agreed to extend the maturity date as to their bonds or reject such proposal. Any holder which failed to return a consent form within the prescribed time was to be treated as having consented to the extension. As of the February 15, 1996, the Company received a negative response from one holder owning $1,000 principal amount of Debentures. While the Company intended to comply with the terms of its agreements with the holders of the Debentures, a series of unforeseen circumstances relating to the Company's permits and reclamation bond caused a cash flow shortage. As a result the Company has been unable to make the payments described above. Management is hopeful that the Company's limited cash flow will improve in the near future and at such time intends to comply with the terms of its December 1995 agreements. As of September 30, 1998, the accrued and unpaid interest on the Debentures is approximately $62,000. On January 17, 1997, the Company received a letter from counsel to James E. Hopis, Revocable Trust, a holder of $5000 of Debentures of the Company demanding payment of such bond immediately or legal action will be taken against the Company to collect on such Debenture. In September, 1997, certain of the Company's 12-1/4% Convertible Debenture holders, including the Hopis Trust (the "Plaintiff Debenture holders") 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. The Company has answered the aforesaid complaint. Thereafter, the Plaintiff Debenture holders moved for summary judgment against the Company. The Company chose not to oppose the motion and a default judgment was entered against the Company in the amount of $42,500 plus interest, costs and disbursements (the "Judgment"). Moreover, the issue of attorney's fees were severed from the case and all to be set down for an inquest. In February, 1998, USM entered into an agreement with the Plaintiff Debenture holders agreeing to pay the Judgement 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 does not consummate the Transaction by July 12, 1998, USM agreed to pay the Plaintiff Debenture holders $5,100 for their agreement not to enter the Judgment against the Company or pursue the inquest. Plaintiff Debenture holders have agreed not to enter 13 Item 1. Legal Proceedings (continued) the Judgment against the Company until July 12, 1998 or until USM notifies them that it will not pursue the Transaction. The termination date of the USM Agreement has been further extended to on or about December 25, 1998. As of the date hereof, the Company is not aware of any termination or modification of the Agreement and believes it is in full force and effect. However, there can be no assurance that USM will not terminate this Agreement or that the Agreement will expire; the result of which will be the entering of the Judgement against the Company and a possible inquest as to the Company's liability regarding attorney's fees. The continued default and failure to comply with the 1994 and December 1995 agreements 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. Management remains hopeful that payment or, in the alternative, commencement of settlement negotiations, will delay the commencement of any legal action until the Company can make the appropriate arrangements to repay the Debenture holders. 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, Inc. ("Golder"), pursuant to which Golder agreed to perform certain services at the Mogul Mine pertaining to environmental issues, including, but not limited to, (a) reviewing surface and groundwater quality and compliance standards, (b) reviewing 110 permitting requirements, applications and responses, (c) reviewing certain environmental plans relating to the Mogul Mine and (d) assessing water discharge requirements and dispensing advice with respect to water discharge and surface spring outflow management and mitigation of poor drainage quality (the "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 environmental issues, including, but not limited to, (a) phase 1 site assessment, (b) preliminary regulatory and permit review, (c) engineering site inspections, (d) designs for surface water management at the ore handling facility, (e) technical memorandum on alternatives for the extension of #5 tailings pond, (f) assistance in negotiation with the DMG and (g) recommendations for bulk ore sampling and mineralogical testing at the Franklin Mines (the "Franklin Mine 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 bears interest at a rate of 6% per annum. In the event that the payments of principal and interest under the notes were not paid when due, all principal and interest will accrue additional interest at a rate of 10% per annum. The notes were secured by a pledge of approximately 3,600,000 shares of Common Stock of the Company owned by Gems, pursuant to a Security Agreement, dated August 23, 1996. Any default under the notes constituted an event of default under the Security Agreement. Gems failed to make the required payments as of 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 general partnership interest in Zeus, it being joint and severally liable with Gems and Nuco as general partners in the Joint Venture. 14 Item 1. Legal Proceedings (continued) 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. On or about March 12, 1997, BCCM filed a motion to dismiss counts III, IV, and V of the Complaint relating to the breach of warranty, misrepresentation and negligent misrepresentation arguing that these claims were pled in the alternative and only become viable in the event other defendants in the case deny BCCM authority to enter into the subject contracts. Also on March 12, 1996, Zeus, the Company, Island and Gems moved to dismiss or stay proceedings pending arbitration arguing that arbitration clauses in the subject contract require the captioned action to be submitted to arbitration. However, Durango filed a separate answer to the Complaint denying that BCCM had any authority to enter into any contract on behalf of Durango and denying that Durango ratified any exercise of such authority. Therefore, on or about March 27, 1997, Golder moved to file an amended complaint to clarify its position that the claims against Durango are also asserted against the Franklin Defendants. The Company has not received a copy of such complaint to date. Notwithstanding, the parties, on April 4, 1997, executed a stipulation agreeing to arbitration on all issues concerning the subject contracts but excluding issues relating to the note and security agreement. After several months of negotiation, the Company reached a settlement agreement with Golder and BCCM pursuant to which the Company has agreed to pay an aggregate amount of $200,000 in exchange for the discontinuance of the litigation and general release of the Company from any further liability. The Company has until December 31, 1998 to make the payment under the settlement agreement. As of the date hereof, no payments have been made in connection with this settlement agreement and there can be no assurance that the Company will be in a position to make such payment on or before December 31, 1998. Environmental Matters As of the date hereof, the Company has no violations against it with respect to the Franklin Mines and Franklin Mill. While there are no outstanding violations against the Company at this time, there can be no assurance that the Company will be able to adequately comply with the conditions set forth in its permit approval or that future violations will not arise and that such violations will not lead to interruptions at the Franklin Mines or Franklin Mill. . Durango Litigation On or about February 1, 1996, Newmineco, Island, Gems and Zeus entered into a series of Transactions with Durango, Thames Hartley, the president of Durango ("Hartley") and J. Wayne Tatman ("Tatman"), an agent of Durango and Hartley and president of Consolidated Milling, Inc. ("Consolidated Milling") to develop certain mining properties, including the Mogul Mines. On or about March 1996, Island acquired the Rugg/Mogul Lease through a Novation Agreement. The Rugg/Mogul Lease was then renegotiated and assigned to Newmineco. Thereafter, Island and Gems notified the Company that Tatman, Hartley and Durango and certain other parties to the Newmineco venture breached their agreements and as a result, Island terminated certain venture agreements involving these persons. Island thereafter assigned its interest in Newmineco to Gems. In June, 1996, Durango and/or Hartley served a series of Notices of Intent to Lien properties owned or leased by each of Gems, Island and the Company, including the Gold Hill Mill. Thereafter, on or about October 15, 1996, James A. Wood and David C. Sutton, each the owner of claims located on the properties comprising the Mogul Mines (the "Delaware Claims" and the "Bonanza Claims", respectively) and Durango, as the proported lessee of such claims, commenced an action in District Court, Boulder County, Colorado, against the Ruggs, Island, Newmineco, the Company and any other unknown parties of interest to quiet title to each of the Delaware Claim and Bonanza Claims (hereinafter the "Disputed Claims"). The complaint further alleges that the defendants have removed ore mined from the Disputed Claims and that, as a result of trespass and conversion of certain equipment of Plaintiff Durango, plaintiffs have been further damaged in the amount of approximately $800,000. In addition to the actions for quiet title and for the adjudication of the ownership of the disputed Claims, Plaintiffs requisite damages for conversion of Plaintiff Durango's equipment, seeks a full accounting of the ore removed from the premises and request all other damages, costs and expenses, including attorney's fees incurred with respect to this dispute. 15 Item 1. Legal Proceedings (continued) On or about November 1, 1998, all parties, in settlement of these suits, agreed to withdraw their claims against each other in full settlement thereof. It is expected that all documentation regarding this agreement will be executed, delivered and filed with the appropriate courts prior to year end. 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. On June 5, 1998, after effectuating a reverse split of the Company's common stock, NASDAQ found the Company to be in compliance with the bid price requirement and all other requirements necessary for continued listing on NASDAQ. On November 10, 1998, the Company received notification from NASDAQ that, based upon their review of the price data covering the last thirty consecutive trade dates, the Company's common stock had failed to maintain a closing bid price of $1.00. In order to remain eligible for continued listing on the NASDAQ Small Cap Market, the Company must regain compliance with the minimum bid price requirement within 90 days from the date of the notification letter; the Company's securities would be subject to delisting, effective the close of business February 10, 1999. The Company would be considered to be in compliance with the minimum bid price rule if at any time prior to February 10, 1999, the shares of common stock of the Company reported a closing bid price of $1.00 or greater for 10 consecutive trading days. Management believes that, given past trends, the Company's Common Stock may not sustain trading for ten consecutive trading days at minimum bid price of $1.00 or more prior to February 10, 1999. In that event, the Company's Common Stock will be delisted and will no longer be traded on the NASDAQ Small Cap Market. However, Management is hopeful that, in the event of delisting, 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 likely 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 responsibilities 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 its 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. 16 Item 1. Legal Proceedings (Continued) Required compliance with the penny stock trading rules affect or will affect the ability to resell the Common Stock by a holder principally because of the additional duties and responsibilities imposed upon the broker-dealers and salespersons recommending and effecting sale and purchase transactions in such securities. In addition, many broker-dealers will not effect transactions in penny stocks, except on an unsolicited basis, in order to avoid compliance with the penny stock trading rules. The penny stock trading rules consequently may materially limit or restrict the liquidity typically associated with other publicly traded equity securities. In this connection, the holder of Common Stock may be unable to obtain on resale the quoted bid price because a dealer or group of dealers may control the market in such securities and may set prices that are not based on competitive forces. Furthermore, at times there may be a lack of bid quotes which may mean that the market among dealers is not active, in which case a holder of Common Stock may be unable to sell such securities. Because market quotations in the over-the-counter market are often subjected to negotiation among dealers and often differ from the price at which transactions in securities are effected, the bid and asked quotations of the Common Stock may not be reliable. 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. The Company believes that it sustained damages of approximately $6,000,000 plus costs and expenses. The Company intends to vigorously defend this suit and aggressively pursue its claims against Redstone. Item 3. Defaults Upon Senior Securities As of September 30, 1998, the Company continues to be in default with respect to the payment of $145,000 principal amount of its 12-1/4 Convertible Debentures (the "Debentures"), which have accrued and unpaid interest thereon as of September 30, 1998 in the amount of approximately $62,000. While it remains the intention of the Company to pay its outstanding obligations with respect to the Debentures, the Company has been unable to meet its obligations to such holders as a result of unforeseen liquidity and cash flow shortages. As a result of its continued default, the Company may be subject to legal proceedings by or on behalf of debenture holders seeking payment of principal and all interest as well as any penalties and other legal remedies the holders may claim they are entitled to receive under the law. There can be no assurance that the Company will have adequate funds available to make the payments required under the December 1995 Agreements or that the commencement of legal proceedings will not have a material adverse effect on the Company. Item 4. Submission of Matters to a Vote of Security Holder 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 Corp." and (iii) confirmed Lazar, Levine & Felix as independent auditors of the Company. Of the 3,955,173 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 which 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. 17
Matter For Against Abstain Withheld Non-votes - ------ --- ------- ------- ------------------ Election of Bill 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 --------- ---------------- 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. Item 5. Other Information On or about August 3, 1998, the Company entered into agreements with each of USM (the "USM Agreement") and William Martucci (the "POS Agreement"). Pursuant to the USM Agreement, USM agreed to forgive indebtedness of the Company, which included a note, dated March 5, 1998, in the principal amount of $955,756.22, plus interest, to POS (which was later assigned to USM, the "POS Note"), release the security interest of USDM in the assets of the Company securing the POS Note and assign its rights to the Hayden-USM Purchase Agreement in exchange for 11,197,413 shares or 42.5% of the issued and outstanding shares of the Company. The Hayden-USM Purchase Agreement is for the purchase by USM of Hayden's 50% interest in the Hayden-Kennec Leases. Under the terms of the POS Agreement, Martucci agreed to sell to the Company 100% of the outstanding shares of POS in exchange for 11,197,413 shares or 42.5% of the issued and outstanding shares of the Company. POS owns and operates free standing ATM Kiosks located in retail outlets. As a condition precedent to the consummation of the transactions contemplated by each of the USM Agreement and the POS Agreement, the Company was required to obtain stockholder approval in a timely manner of such transactions. 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 aft the filing of the preliminary proxy materials, the Commission informed the Company that the staff of the Commission (the "Staff") would be conducting a full review of the proxy materials and the underlying proposals. The Company informed USM and Martucci of the Staff's inquiry and was thereafter notified that USM and Martucci wished to terminate the agreements under the premise that the Company could not secure stockholder approval of the transactions in a timely manner. See Item 4. Submission of Matters to a Vote of Security Holders for further information about the Annual Meeting of Shareholders of the Company held October 12, 1998. 18 Item 5. Other Information (continued) 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 POS Note and an additional $144,280 loaned to the Company subsequent to the date of the POS Note. The letter contained a settlement proposal to satisfy all amounts due and owing to USM. On September 25,. 1998, the Company responded to the USM letter with a counter proposal and thereafter the parties commenced active negotiations in an attempt to resolve this matter favorably. At a meeting of the Board of Directors of the Company on October 8, 1998 a settlement agreement was approved whereby USM would convert the entire amount of the Company's indebtedness to USM into shares of common stock of the Company at a conversion price equal to 50% of the closing bid price as of the close of business October 7, 1998. The price of the Company's common stock at the close of business on October 7, 1998 was $.66 per share. Therefore, the conversion rate under the settlement agreement would be one share of common stock of the Company for each $.33 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 927,757 shares of common stock of the Company which would have resulted 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, or (ii) the issuance of a waiver by the NASDAQ Small Cap Market which would allow the Company to issue the shares without holding special meeting of its stockholders, provided that the Company notify the shareholders 10 days prior to the issuance of the shares to USM. 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 decided to make an 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 tock 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 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. Although the Board of Directors of the Company has approved the issuance of 927,757 shares of common stock of the Company, such shares have not been issued. The Company however, continues to be in default of the POS Note and has not, as of the date hereof, repaid any of the amounts owed to USM. The Company and USM are continuing negotiations with respect to the outstanding monies owed to USM and USM is still funding the Company. Item 6. Exhibits and Reports on Form 8-K A. Exhibits Press Release dated October 28, 1998 Press Release dated November 11, 1998 B. Reports on Form 8-K None 19 SIGNATURE In accordance with the requirements of the Securities and Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FRANKLIN CONSOLIDATED MINING CO, INC. Date: November 24, 1998 /s/ Robert Walligunda -------------------------------------------- Robert Walligunda, President s 20 EX-27 2 FDS --
5 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 0 0 0 0 0 0 6,769,095 2,094,436 5,518,934 2,109,415 0 0 0 39,552 5,479,382 5,518,934 0 18,593 0 843,899 0 0 89,505 (825,306) 0 (825,306) 0 0 0 (825,306) (.21) 0
EX-99 3 PRESS RELEASE FOR IMMEDIATE RELEASE New York, New York/Idaho Springs, Colorado - OCTOBER 28, 1998 - FRANKLIN CONSOLIDATED MINING CO., INC. (NASDAQ symbol FKCM) announced today that the name of the Company has changed to WCM Capital, Inc. and the new NASDAQ symbol "WCMC". The Company also wishes to announce the positions of the following officers: Robert Waligunda - President, Treasurer, Richard Brannon - Vice President, Secretary, George Otten - Vice President The Audit Committee shall consist of : Robert W. Singer, Ronald Ginsberg and Robert Waligunda. CONTACT: Robert Waligunda, Pres. (212) -344-2828 * Statements in this press release, other than statements of historical information, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that forward-looking statements are inherently uncertain. Actual performance and results may differ materially from that projected or suggested due to certain risks and uncertainties including, without limitation, risks associated with mining and milling operations, the availability of debt and equity capital on a reasonable terms and the effects of government regulations and operations risks. Additional information concerning certain risks and uncertainties that could cause actual, results to differ materially from that projected or suggested is contained in the Company's filings with the Securities and Exchange Commission (SEC) over the past 12 months, copies of which are available from the SEC or may be obtained upon request from the Company. The forward-looking statements contained herein represent the Company's judgement as of the date of this release, and the Company cautions readers not to place undue reliance on such statements. EX-99.1 4 PRESS RELEASE FOR IMMEDIATE RELEASE New York, New York/Idaho Springs, Colorado - November 11, 1998 - WCM CAPITAL, INC. (NASDAQ symbol WCMC) announced today the results of a February 19, 1998 survey conducted by Steven R. Schurman, a Certified Professional Geologist and president of MinSearch, Inc., a Denver, Colorado based entity specializing in mineral project evaluation, exploration, project permitting, mapping and drill testing. Mr. Schurman's review of existing technical data relative to ore bodies found at the Franklin Mine in February and in October, 1998, revealed two additional areas of strong gold mineralization approximately halfway between the Franklin and Freighters Friend shafts on the 900 and 976 levels of the mine. The ore grade gold mineralization was defined by 76 samples taken at five-foot intervals along the vein. The sampling indicates the presence of 6,200 tons of rock containing an average of 0.91 oz/ton gold, 9.5 oz/ton silver and substantial quantities of lead and zinc. Mr. Schurman is a former director of the Company and is currently acting as an adviser to the Company with respect to mining projects. CONTACT: Robert Waligunda, Pres. (212) - 344-2828 * Statements in this press release, other than statements of historical information, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that forward-looking statements are inherently uncertain. Actual performance and results may differ materially from that projected or suggested due to certain risks and uncertainties including, without limitation, risks associated with mining and milling operations, the availability of debt and equity capital on a reasonable terms and the effects of government regulations and operations risks. Additional information concerning certain risks and uncertainties that could cause actual, results to differ materially from that projected or suggested is contained in the Company's filings with the Securities and Exchange Commission (SEC) over the past 12 months, copies of which are available from the SEC or may be obtained upon request from the Company. The forward-looking statements contained herein represent the Company's judgement as of the date of this release, and the Company cautions readers not to place undue reliance on such statements. -----END PRIVACY-ENHANCED MESSAGE-----