-----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, TFGz7xS8HEyTObhxzATXkj+BCNsZGfwgbevuZjLbwinga8Wzz/Gs8FuRL1DmQN5l joIOgmx8o1NMiJVCwDmz2w== 0000891554-99-001604.txt : 19990816 0000891554-99-001604.hdr.sgml : 19990816 ACCESSION NUMBER: 0000891554-99-001604 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 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: 99687284 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 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to _________ Commission File Number: 0-9416 WCM CAPITAL, INC. (Exact name of small business issuer as specified in its charter) DELAWARE 13-2879202 (State or other jurisdiction of (I.R.S. Employer Incorporation or organization) Identification No.) 76 Beaver Street, Suite 500, New York, New York 10005 (Address of principal executive offices) Issuer's telephone number, including area code: (212) 344-2828 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 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 ___ State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. Class Outstanding at June 30, 1999 - ----------------------- ---------------------------- Common Stock, par value 3,955,169 Shares $.01 per share Transitional Small Business Format (check one); Yes ___ No _X_ PART I. FINANCIAL INFORMATION Item 1. Financial Statements WCM CAPITAL, INC. (A DEVELOPMENT STAGE COMPANY) CONDENSED BALANCE SHEETS (Unaudited) ASSETS
June 30, December 31, 1999 1998 ------------ ------------ CURRENT ASSETS: Cash and cash equivalents $ -- $ -- ------------ ------------ TOTAL CURRENT ASSETS -- -- Mining, milling and other property and equipment, net of accumulated depreciation and depletion of $2,118,869 and $2,105,515 4,795,226 4,808,580 Mining reclamation bonds 135,673 134,602 ------------ ------------ $ 4,930,899 $ 4,943,182 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses $ 607,691 $ 654,164 Payroll and other taxes payable 29,960 29,960 Convertible debentures 145,000 145,000 Notes payable - related party and others 218,965 218,965 Note payable - related party 1,340,756 1,191,586 ------------ ------------ TOTAL CURRENT LIABILITIES 2,405,372 2,239,675 ------------ ------------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock, par value $.01 per share; 100,000,000 shares authorized; 3,955,169 shares issued and outstanding 988,793 988,793 Additional paid-in capital 17,414,755 17,414,755 Deficit accumulated during the development stage (15,878,021) (15,700,041) ------------ ------------ 2,525,527 2,703,507 ------------ ------------ $ 4,930,899 $ 4,943,182 ============ ============
See notes to condensed financial statements. 2 WCM CAPITAL, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS SIX AND THREE MONTHS ENDED JUNE 30, 1999 AND 1998 AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION) TO JUNE 30, 1999 (Unaudited)
Six Months Three Months Cumulative Ended June 30, Ended June 30, From 1999 1998 1999 1998 Inception ---------------------------- ---------------------------- ------------ REVENUES: Sales $ -- $ -- $ -- $ -- $ 876,082 Interest income 1,071 5,363 672 4,383 549,766 Other income -- -- -- -- 79,397 ------------ ------------ ------------ ------------ ------------ 1,071 5,363 672 4,383 1,505,245 ------------ ------------ ------------ ------------ ------------ EXPENSES: Mine expenses and environmental remediation costs 25,593 38,491 10,916 26,145 3,611,890 Write-down of mining and milling and other property and equipment -- 265,000 -- 265,000 1,665,000 Depreciation and depletion 13,354 63,507 6,677 33,012 2,314,218 General and administrative expenses 69,424 215,220 43,782 113,726 6,317,801 Interest expense 70,681 57,397 36,082 30,302 1,212,160 Amortization of debt issuance expense -- -- -- -- 683,047 Equity in net loss and settlement of claims of Joint Venture -- -- -- -- 1,059,971 Other -- -- -- -- 519,179 ------------ ------------ ------------ ------------ ------------ 179,052 639,615 97,457 468,185 17,383,266 ------------ ------------ ------------ ------------ ------------ NET LOSS $ (177,981) $ (634,252) $ (96,785) $ (463,802) $(15,878,021) ============ ============ ============ ============ ============ BASIC LOSS PER COMMON SHARE $ (.04) $ (.16) $ (.02) $ (.12) ============ ============ ============ ============ WEIGHTED AVERAGE SHARES OUTSTANDING 3,955,173 3,955,173 3,955,173 3,955,173 ============ ============ ============ ============
See notes to condensed financial statements 3 WCM CAPITAL, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 1999 AND 1998 AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION) TO JUNE 30, 1999 (Unaudited)
Cumulative from 1999 1998 Inception ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (177,980) $ (634,252) $(15,878,020) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and depletion 13,354 63,507 2,314,218 Provision for bad debt -- -- 350,000 Write-down of mining and milling and other property and equipment -- 265,000 1,400,000 Amortization of debt issuance expense -- -- 683,047 Loss on Sale of Equipment -- -- 265,000 Value of common stock issued for: Services and interest -- -- 1,934,894 Settlement of litigation -- -- 100,000 Settlement of claims by joint venture partner -- -- 936,000 Compensation resulting from stock options granted -- -- 311,900 Value of stock options granted for services -- -- 112,500 Equity in net loss of joint venture -- -- 123,971 Other -- -- (7,123) Changes in operating assets and liabilities: Interest accrued on mining reclamation bonds (1,071) (5,363) (10,673) Accounts payable and accrued expenses 16,527 128,165 932,906 ------------ ------------ ------------ NET CASH USED IN OPERATING ACTIVITIES (149,170) (182,943) (6,431,380) ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases and additions to mining, milling and other property and equipment -- -- (5,120,354) Purchases of mining reclamation bonds, net -- -- (125,000) Deferred mine development costs and other expenses -- -- (255,319) ------------ ------------ ------------ NET CASH USED IN INVESTING ACTIVITIES -- -- (5,500,673) ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Issuances of common stock -- -- 8,758,257 Issuance of underwriter's stock warrants -- -- 100 Commissions on sales of common stock -- -- (381,860) Purchases of treasury stock -- -- (12,500) Payments of deferred underwriting costs -- -- (63,814) Proceeds from exercise of stock options -- -- 306,300 Issuance of convertible debentures and notes -- -- 1,505,000 Proceeds of advances from joint venture partner -- -- 526,288 Advances to joint venture partner -- -- (181,017) Payments of debt issuance expenses -- -- (164,233) Proceeds of other notes and loans payable 149,170 181,865 1,752,239 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 149,170 181,865 11,932,053 ------------ ------------ ------------
(Continued) 4 WCM CAPITAL, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 1999 AND 1998 AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION) TO JUNE 30, 1999 (Unaudited)
Cumulative from 1999 1998 Inception ------------ ------------ ------------ DECREASE IN CASH $ -- $ (1,078) $ -- CASH - beginning of period -- 1,078 -- ------------ ------------ ------------ CASH - end of period $ -- $ -- $ -- ============ ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA: Interest paid $ -- $ 3,889 $ 299,868 ============ ============ ============
See notes to condensed financial statements. 5 WCM CAPITAL, INC. (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO CONDENSED FINANCIAL STATEMENTS JUNE 30, 1999 NOTE 1 - UNAUDITED INTERIM FINANCIAL STATEMENTS In the opinion of management, the accompanying unaudited condensed financial statements reflect all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial position of WCM CAPITAL, INC. (the "Company") as of June 30, 1999, and its results of operations and cash flows for the six and three months ended June 30, 1999 and 1998. Information included in the condensed balance sheet as of December 31, 1998 has been derived from the audited balance sheet in the Company's Annual Report on Form 10-KSB for the year ended December 31, 1998 (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 six and three months ended June 30, 1999 are not necessarily indicative of the results of operations for the full year ending December 31, 1999. 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 June 30, 1999, the Company has an accumulated deficit of approximately $15,878,000, current liabilities of $2,405,372, and a working capital deficiency of $2,405,372. Also, the Company was in default on the payment of the principal balance and accrued interest on certain notes and debentures and certain accounts payable are past due. In addition to the payment of its current liabilities, management estimates that the Company will incur general, administrative, and other costs and expenditures, exclusive of any costs and expenditures related to any mining and milling operations, at the rate of approximately $20,000 per month plus interest during 1999. Such matters raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that may result from the outcome of the above uncertainty. U.S. Mining Co. and its affiliates have pledged to provide financing to the Company on an as needed basis until on or about January 1, 2000. The funds received from USM and its affiliates will cover the general, administrative and other costs approximated at $20,000 per month plus interest. Additional monies raised from USM will help finance $750,000 of funds the Company estimates will be needed to ready the Franklin Mine and Milling properties for the commencement of extraction and milling. 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 and its affiliates. In the event that the Company defaults on its obligations, USM may foreclose on the assets secured by the USM note. Such foreclosure actions by USM would have a material adverse effect on the Company's ability to continue operations. Substantially all of the approximately $4,800,000 of mineral properties and equipment included in the accompanying balance sheet as of June 30, 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. 6 WCM CAPITAL, INC. (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO CONDENSED FINANCIAL STATEMENTS JUNE 30, 1999 NOTE 3 - NOTES PAYABLE RELATED PARTY AND OTHERS Notes payable related party and others consist of the following at March 31, 1999: 12% unsecured demand note due to an affiliate of the former president of the Company $ 71,965 Secured promissory note (a) 60,000 Unsecured promissory notes (b) 87,000 -------- $218,965 ======== (a) The outstanding principal balance of the note became payable on July 18, 1996 and the Company is in default. The note is guaranteed by certain officers of Gems and is collateralized through a subordinated security interest in the Company's mining reclamation bond. Interest on the note is payable based on the rate of interest applicable to the mining reclamation bond. (b) This principal amount represents four unsecured promissory notes comprised of one $36,000 note and three $17,000 notes payable. The Company assumed these obligations on November 25, 1997, as part of the acquisition from USM of the remaining interest in the Joint Venture. These notes were in default when assumed by the Company, and remain in default as of June 30, 1999. Interest is being accrued at rates between 8% and 17% per annum. Accrued interest on the above notes at June 30, 1999 aggregated approximately $56,000. NOTE 4 - CONVERTIBLE DEBENTURES The Company's convertible debt at June 30, 1999 consist of: 12.25% convertible debenture originally due 12/31/94 $145,000 As of June 30, 1999, the Company was in default with respect to the payment of the $145,000 principal balance of the debenture and accrued interest of approximately $75,000. As a result of its default, the Company is subject to and may be subject to further litigation by the Transfer Agent/Trustee under the Indenture Agreement or from debenture holders seeking immediate repayment of principal plus interest and other costs. Management cannot assure that there will be funds available for the required payments or what the effects will be of any actions brought by or on behalf of the debenture holders. See "Note 6 - Commitments and Contingencies; Litigation" below. NOTE 5 - NOTE PAYABLE - RELATED PARTY The Company had outstanding a 8% promissory note balance of $1,340,756, at June 30, 1999, which represents monies advanced to the Company by U.S. Mining, Inc. ("USM"), a company owned by a Company Director, and its affiliates, 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 was 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 Financial, Inc., an affiliate of USM, assigned this note to USM. Accrued interest at June 30, 1999 was approximately $144,000. 7 WCM CAPITAL, INC. (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO CONDENSED FINANCIAL STATEMENTS JUNE 30, 1999 NOTE 6 - 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. To further secure the ability of the Company and the Joint Venture to utilize the leasehold covered by the Hayden/Kennec Leases, Gems and Minerals Corp. ("Gems") entered into an agreement with Mrs. Hayden to purchase her interest in the Hayden/Kennec Leases (the "Hayden Interest".) Gems had advised the Company that under Colorado Law, if an owner of 50% of mineral rights desires to exploit those rights, then the remaining 50% owner could not object to the exploitation of the rights, provided the non-participating owner received 50% of the net profits generated from such exploitation. Therefore, by acquiring the Hayden Interest, the Company would be free to exploit the leasehold interests comprising the Franklin mining properties irrespective of whether Mrs. Kennec elected not to renew her portion of the Hayden/Kennec Leases or sell her interest to the Company as per the terms of the Agreement. However, on or about November 11, 1997, Gems defaulted on its obligations under the terms of the purchase agreement and the agreement terminated. On November 13, 1997, Hayden entered into an agreement to sell the Hayden interests to USM for a purchase price of $75,000 (the "Hayden-USM Purchase Agreement"). The purchase price is evidenced by note, due on February 2, 1998. Upon the execution of the Hayden-USM Purchase Agreement, USM agreed to extend the Hayden/Kennec Leases upon the same terms and conditions currently in effect through March 13, 1998. As of the date hereof, USM has not consummated the transaction contemplated by the Hayden-USM Purchase Agreement. Although the Hayden-USM Purchase Agreement has expired, USM has continued to make royalty payments to Mrs. Hayden pursuant to the terms of the Hayden-USM Purchase Agreement. No assurance can be given as to whether the Hayden-USM Purchase Agreement will be consummated. In the event that the Hayden-USM Purchase Agreement is not consummated, no assurance can be given that the Company will not loose its rights to the leasehold properties. On or about November 19, 1996, the Company entered into an agreement with Mrs. Dorothy Kennec to extend her portion of the Hayden/Kennec Leases through November 12, 1997. This agreement was further extended through March 12, 1998; however, as of the date hereof, Mrs. Kennec has granted no further extensions. There can be no assurance that the Company and Mrs. Kennec will come to any agreement with respect to the use of her leasehold interest or to purchase her interest in the future. 8 WCM CAPITAL, INC. (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO CONDENSED FINANCIAL STATEMENTS JUNE 30, 1999 NOTE 6 - COMMITMENTS AND CONTINGENCIES (Continued) Environmental Matters On January 31, 1997, the Company received approval from the Colorado Department of Minerals and Geology ("DMG") of its March 6, 1996 amended application and, as of the date hereof, to management's knowledge, the Company has no violations against it with respect to the Franklin Mines and Mill. In addition, the Company posted a $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 former Joint Venture partner (the Franklin Mines and related assets previously were owned by a joint venture between the Company and another corporate 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 which was subsequently completed. As a result, management believes that substantially all of the necessary environmental and regulatory approvals have been obtained from DMG. As of June 30, 1999, there are no formal violations against the Company 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 case is currently in negotiation for settlement. An accrued liability of $135,000 which the Company estimates to be its portion of the total claim has been recorded in the accompanying December 31, 1998 and June 30, 1999 financial statements (b) 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. Default was entered against the Company in the amount of $42,500 plus interest, costs and disbursements. The Company and USM have been negotiating with the debenture holders but to this point no settlement agreement has been reached. The continued default of the Company could result in the Company being subject to additional legal proceedings. In addition, there is no assurance that funds will be available to cure the default or reach an acceptable settlement. 9 WCM CAPITAL, INC. (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO CONDENSED FINANCIAL STATEMENTS JUNE 30, 1999 Note 6 - COMMITMENTS AND CONTINGENCIES (Continued) (c) The Company is in litigation with Redstone Securities, Inc. ("Redstone") a company, which in the past had provided investment banking and consulting services to the Company. Redstone was issued stock as compensation for these services. Redstone alleged that it has been restricted by the Company in its efforts to sell and/or trade this stock. Redstone is now asserting claims for damages in an amount in excess of the market value of the 120,000 shares, as adjusted, of Company stock along with punitive damages (not less than $600,000) allegedly premised upon the Company's intentional conduct in restricting the sale of the aforementioned stock 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. In June 1999, the parties, through their respective counsel, agreed to settle the matter. Pursuant to the proposed settlement, the Company agreed to pay Redstone $150,000 on or before September 7, 1999. As of the date hereof, the Company has not paid Redstone. In the event that such payment is not made by September 7, 1999, the litigation will proceed. An unfavorable resolution of these matters could result in material liabilities or charges that have not been reflected in the accompanying financial statements. NASDAQ Notification 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 ten 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, thereby bringing it into compliance with NASDAQ rules. However, the price has since dropped below $1.00. No assurance can be given that the Company will continue to be in compliance with the minimum maintenance requirements for continued listing on NASDAQ. 10 Item 2. Management's Discussion And Analysis Of Financial Condition And Results Of Operations Cautionary Statement on Forward-Looking Statements Except for the historical information contained herein, certain of the matters discussed in this quarterly report are "forward-looking statements," as defined in Section 21E of the Securities Exchange Act of 1934, which involve certain risks and uncertainties, which could cause actual results to differ materially from those discussed herein including, but not limited to, risks relating to changing economic conditions, changes in the prices of minerals, the results of development and testing of the properties and actual mining and other risks disclosed in this quarterly report. The Company cautions readers that any such forward-looking statements are based on management's current expectations and beliefs but are not guarantees of future performance. Actual results could differ materially from those expressed or implied in the forward-looking statements. Liquidity and Capital Resources The Company had no active mining or milling operations during the first and second quarters of 1999, however, remediation work was substantially completed at the Franklin Mine and Mill in preparation for the anticipated commencement of mining operations. The Company has had recurring losses and cash flow deficiencies since inception. As at June 30, 1999, the Company had an accumulated deficit of approximately $15,878,000, current liabilities of $2,405,372, and a working capital deficiency of $2,405,372. Also, the Company was in default on the payment of the principal balance and accrued interest on certain notes and debentures and certain accounts payable are past due. In addition to the payment of its current liabilities, management estimates that the Company will incur general, administrative, and other costs and expenditures, exclusive of any costs and expenditures related to any mining and milling operations, at the rate of approximately $20,000 per month plus interest during 1999. Moreover, the report of the Company's independent auditors on the audited financial statements as of and for the fiscal years ended December 31, 1998 and 1997 contained an explanatory paragraph concerning the Company's ability to continue as a going concern. Such matters raise substantial doubt about the Company's ability to continue as a going concern. Management estimates that the Company will incur general, administrative and other costs and expenditures, exclusive of any costs and expenditures related to any mining and milling operations and interest, at the rate of approximately $20,000 per month for the remainder of 1999. USM and its affiliates have verbally pledged to provide financing to the Company on an as needed basis until on or about January 1, 2000. The Company cannot assure, however, that USM will fulfill its commitment to fund the Company's operations through January 2000. The funds received from USM and its affiliates will cover the general, administrative and other costs approximated at $20,000 per month plus interest. Additional monies raised from USM will help finance $750,000 of funds the Company estimates will be needed to ready the Franklin Mine and Milling properties for the commencement of extraction and milling. 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 and its affiliates or that USM will fulfill its obligations to fund the Company through January 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 Company's ability to continue operating. During the six months ended June 30, 1999 and 1998, USM, and its affiliates provided financing in the amount of $149,170 and 181,865, respectively, to finance cash flows from operating activities. 11 Results of Operations: Six and Three Months Ended June 30, 1999 Compared to Six and Three Months Ended June 30, 1998 The Company had a net loss of $177,981 and $96,785 for the six and three months ended June 30, 1999 respectively, as compared to a net loss of $634,252 and $463,802 during the same periods in 1998. The loss in 1998 was higher due to a $265,000 loss on sale of the Gold Hill Mill Properties in 1998. Mine expenses and environmental remediation costs were $25,593 and $10,916 for the six and three months ended June 30, 1999, respectively, compared to $38,491 and $26,145 during the same periods in 1998. this decrease was due to lower levels of activities in the 1999 periods. General and administrative expenses were $69,424 and $43,782 for the six and three months ended June 30, 1999 respectively, compared with $215,220 and $113,726 during the same periods in 1998. This decrease was due to a substantial decrease in legal and professional fees, as well as settlements with venders resulting in a reduction of accounts payable of approximately $38,000. Interest expense was $70,681 and $36,082 during the six and three months ended June 30, 1999 respectively, as compared to $57,397 and $30,302 during the same periods in 1998. This increase was due to interest incurred on the USM note. 12 PART II Item 1. Legal Proceedings Convertible Debentures On June 1, 1994, the Company advised its 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 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. Thereafter, the Plaintiff Debenture holders 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 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 Default plus certain additional costs in the event that the Company fails to pay the Default and USM consummates its then contemplated transaction with the Company. In the event that USM did not consummate that 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 agreed not to enter the Judgment against the Company until July 12, 1998 or until USM notified them that it would not pursue the transaction. On or about April 6, 1998, USM determined terminated its letter of intent to consummate the then contemplated 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 under 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. ("BCCM"), Colorado counsel to the Company, Gems and Minerals Corp. ("Gems"), Zeus No. 1 Investments ("Zeus") - a California general partnership between the Company and Island Investment Corp., a Nevada corporation ("Island"), and Newmineco, entered into a contract with Golder Associates, Inc. ("Golder"), pursuant to which Golder agreed to perform certain services at the Mogul Mine (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. 13 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 general partnership interest in Zeus, it being joint and severally liable with Gems and Nuco as general partners in the Joint Venture. 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 Company, Golder, and BCCM have arrived at a tentative settlement and settlement papers have been circulated; however, there can be no assurance that a final settlement will be effected. 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. In June 1999, the parties, through their respective counsel, agreed to settle the matter. Pursuant to the proposed settlement, the Company agreed to pay Redstone $150,000 on or before September 7, 1999. As of the date hereof, the Company has not paid Redstone. In the event that such payment is not made by September 7, 1999, the litigation will proceed. 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. 14 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, thereby bringing it into compliance with NASDAQ rules. However, the price has since dropped below $1.00. No assurance can be given that the Company will continue to be in compliance with the minimum maintenance requirements for continued listing on NASDAQ In the event that the Company cannot maintain its listing on the NASDAQ Small Cap Market, 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 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 it's unlawful to effectuate a transaction in the penny stock without first obtaining a written agreement to the transaction. Furthermore, until the purchaser becomes an established customer (i.e., having had an account with the dealer for at least one year or, the dealer had effected three sales or more of penny stocks on three or more different days involving three or more different issuers), the broker-dealer must obtain from the purchaser a written agreement to purchase the penny stock which sets forth the identity and number of shares of units of the security to be purchased prior to confirmation of the purchase. A dealer is obligated to provide certain information disclosures to the purchaser of penny stock, including (i) a generic risk disclosure document which is required to be delivered to the purchaser before the initial transaction in a penny stock, (ii) a transaction-related disclosure prior to effecting a transaction in the penny stock (i.e., confirmation of the transaction) containing bid and asked information related to the penny stock and the dealer's and salesperson's compensation (i.e., commissions, commission equivalents, markups and markdowns) connection with the transaction, and (iii) the purchaser-customer must be furnished account statements, generally on a monthly basis, which include prescribed information relating to market and price information concerning the penny stocks held in the customer's account. The penny stock trading rules do not apply to those transactions in which the broker-dealer or salesperson does not make any purchase or sale recommendation to the purchaser or seller of the penny stock. Required compliance with the penny stock trading rules affect or will affect the ability to resell the Common Stock by a holder principally because of the additional duties and responsibilities imposed upon the broker-dealers and salespersons recommending and effecting sale and purchase transactions in such securities. In addition, many broker-dealers will not effect transactions in penny stocks, except on an unsolicited basis, in order to avoid compliance with the penny stock trading rules. The penny stock trading rules consequently may materially limit or restrict the liquidity typically associated with other publicly traded equity securities. In this connection, the holder of Common Stock may be unable to obtain on resale the quoted bid price because a dealer or group of dealers may control the market in such securities and may set prices that are not based on competitive forces. Furthermore, at times there may be a lack of bid quotes which may mean that the market among dealers is not active, in which case a holder of Common Stock may be unable to sell such securities. Because market quotations in the over-the-counter market are often subjected to negotiation among dealers and often differ from the price at 15 which transactions in securities are effected, the bid and asked quotations of the Common Stock may not be reliable. Item 5. Other Information On or about January 11, 1999, USM executed into 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 in Clean Creek County, Colorado. This letter of intent was thereafter 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 properties, the Company decided not to pursue this venture at this time and notified the other parties of its decision on or about April 1999. Item 6. Exhibits and Reports on Form 8-K Form 8-K filed with the Securities and Exchange Commission on June 25, 1999. 16 SIGNATURE Pursuant to the requirements of the Securities and Exchange Act of 1934, the registration has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WCM CAPITAL, INC. /s/ Robert Waligunda Date: August 13, 1999 ---------------------- Robert Waligunda President 17 EX-27 2 FDS
5 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 0 0 0 0 0 0 6,914,095 2,118,869 4,930,899 2,405,372 0 0 0 988,793 1,536,734 4,930,899 0 1,071 0 179,052 0 0 70,681 (177,981) 0 (177,981) 0 0 0 (177,981) (.04) (.04)
-----END PRIVACY-ENHANCED MESSAGE-----