-----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, JSHlrBoxVSFWjf9CkiGmBLekPnsRhO1objcJTGoSRKgJeNLch9DKizOrIcHgY+1n CDJxaRkG5KXPzdrkxHNAvg== 0001144204-05-001227.txt : 20050114 0001144204-05-001227.hdr.sgml : 20050114 20050114131259 ACCESSION NUMBER: 0001144204-05-001227 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20040331 FILED AS OF DATE: 20050114 DATE AS OF CHANGE: 20050114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WITS BASIN PRECIOUS MINERALS INC CENTRAL INDEX KEY: 0000912875 STANDARD INDUSTRIAL CLASSIFICATION: GOLD & SILVER ORES [1040] IRS NUMBER: 841236619 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-12401 FILM NUMBER: 05530070 BUSINESS ADDRESS: STREET 1: 800 NICOLLET MALL STREET 2: SUITE 2690 CITY: MINNEAPOLIS STATE: MN ZIP: 55402 BUSINESS PHONE: (612)664-0570 MAIL ADDRESS: STREET 1: 800 NICOLLET MALL STREET 2: SUITE 2690 CITY: MINNEAPOLIS STATE: MN ZIP: 55402 FORMER COMPANY: FORMER CONFORMED NAME: ACTIVE IQ TECHNOLOGIES INC DATE OF NAME CHANGE: 20010702 FORMER COMPANY: FORMER CONFORMED NAME: METEOR INDUSTRIES INC DATE OF NAME CHANGE: 19960313 10QSB/A 1 v011183_10qsb-a.htm
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

AMENDMENT NO. 1
FORM 10-QSB/A


[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2004

OR

[  ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

 
Commission file number 1-12401

 
WITS BASIN PRECIOUS MINERALS INC.
(Exact Name of Registrant as specified in Its Charter)

Minnesota

 

84-1236619

(State or Other Jurisdiction of
Incorporation or Organization)

 

(I.R.S. Employer Identification No.)

                       
80 South 8th Street, Suite 900, Minneapolis, MN 55402
(Address of Principal Executive Offices)

612.349.5277
(Issuer’s Telephone Number, Including Area Code)
 
520 Marquette Avenue, Suite 900, Minneapolis, MN 55402
(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report)


Check whether the issuer: (1) 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 issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

As of May 14, 2004, there were 33,275,181 shares of common stock, $.01 par value, outstanding.

Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]

   

 

PURPOSE OF AMENDMENT NO. 1

This Amendment No. 1 to the Company’s Quarterly Report on Form 10-QSB/A for the quarter ended March 31, 2004, which amends the Company’s Form 10-QSB originally filed on May 17, 2004, is being filed in response to comments received from the Securities and Exchange Commission in connection with its review of the Company’s registration statement on Form S-2 (file number 333-110831).

The Company has restated the financial statements contained in Part I, Item 1 of this Amendment No. 1 to, among other things, show reclassification to the Company’s financial statements for the quarter ended March 31, 2004, consolidated balance sheet as of March 31, 2004, the consolidated statement of operations for the quarter ended March 31, 2004, and the consolidated statement of cash flows for the quarter ended March 31, 2004 to reclass the issuance of shares of our common stock related to a private placement we completed in October 2003 and restate amortization of our exploration acquisitions. The net result of the reclassifications resulted in an increase in net loss of $1,910,873. In addition, loss per share increased $0.06 for the quarter ended March 31, 2004. As reflected in the consolidated balance sheet, the assets of our exploration acquisitions, Participation Mining Rights, have been consolidated into a single line. The Company has also restated the information contained in the Management’s Discussion and Analysis of Financial Conditions and Results of Operations contained in Part I, Item 2 of this Amendment No. 1.

This amendment incorporates the cumulative changes of the Company’s Forms 10-Q/A for the quarters ended March 31, 2003 (to reflect the Hosted Solutions Business as discontinued operations); June 30, 2003 and September 30, 2003, and the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2003 (to reflect its transformation into an exploratory stage company upon the adoption of a new business model and to reflect reclassifications of the Company’s exploration acquisitions). See Note 7 - Restatement.

Only Items 1 and 2 of Part I are being amended hereby and the Company has not included any items of this report not being amended. This Amendment No. 1 does not update any other disclosures to reflect developments since the original date of filing.

 
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Amendment No. 1, which are forward-looking in nature, are based on the current beliefs of our management as well as assumptions made by and information currently available to management, including statements related to the uncertainty of the quantity or quality of probable ore reserves, the fluctuations in the market price of such reserves, general trends in our operations or financial results, plans, expectations, estimates and beliefs. In addition, when used in this Amendment No. 1, the words “may,” “could,” “should,” “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “predict” and similar expressions and their variants, as they relate to us or our management, may identify forward-looking statements. These statements reflect our judgment as of the date of this Amendment No. 1 with respect to future events, the outcome of which is subject to risks, which may have a significant impact on our business, operating results or financial condition. Readers are cautioned that these forward-looking statements are inherently uncertain. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results or outcomes may vary materially from those described herein. We undertake no obligation to update forward-looking statements. The risks identified in the section following Item 2 entitled “RISK FACTORS,” contained in the original Form 10-QSB filed May 17, 2004, among others, may impact forward-looking statements contained in this Amendment No. 1.


  2  

 

WITS BASIN PRECIOUS MINERALS INC. and SUBSIDIARIES
(AN EXPLORATION STAGE COMPANY)
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements

Condensed Consolidated Balance Sheets
 
     
Restated
(unaudited)
March 31,
2004
 
Restated
December 31, 2003
 
ASSETS
         
CURRENT ASSETS
         
Cash and equivalents
 
$
248,967
 
$
363,990
 
Prepaid expenses
   
459,087
   
612,777
 
Total current assets
   
708,054
   
976,767
 
               
PARTICIPATION MINING RIGHTS, net
   
2,092,733
   
1,547,956
 
   
$
2,800,787
 
$
2,524,723
 
               
LIABILITIES and SHAREHOLDERS’ EQUITY
             
CURRENT LIABILITIES
             
Accounts payable
 
$
132,747
 
$
59,226
 
               
Net liabilities of operations of discontinued
             
hosted solutions business
   
27,568
   
34,734
 
               
Accrued expenses
   
383,861
   
12,775
 
Total current liabilities
   
544,176
   
106,735
 
               
ACCRUED GUARANTEE FEE
   
30,000
   
30,000
 
               
COMMITMENTS and CONTINGENCIES
             
               
SHAREHOLDERS’ EQUITY
             
               
Common stock, $.01 par value, 150,000,000 shares authorized;
             
33,275,181 and 30,297,181 shares issued and outstanding
   
332,752
   
302,972
 
Additional paid-in capital
   
30,585,973
   
27,423,258
 
Deferred compensation
   
(82,475
)
 
 
Warrants
   
4,293,438
   
4,146,438
 
Accumulated deficit
   
(22,932,460
)
 
(22,932,460
)
               
Deficit accumulated during exploration stage, subsequent
             
to April 30, 2003
   
(9,970,617
)
 
(6,552,220
)
Total shareholders’ equity
   
2,226,611
   
2,387,988
 
   
$
2,800,787
 
$
2,524,723
 


See accompanying notes to condensed consolidated financial statements
 

  3  

 

WITS BASIN PRECIOUS MINERALS INC. and SUBSIDIARIES
(AN EXPLORATION STAGE COMPANY)
Condensed Consolidated Statements of Operations
(unaudited)

 
                 
Restated 
 
                 
May 1, 2003  
 
     
Three months ended March 31,
   
(inception)
 
     
Restated
2004
   
Restated
2003
   
to March 31,
2004
 
Revenues
 
$
 
$
 
$
 
                     
Operating Expenses:
                   
General and administrative
 
$
819,906
 
$
59,332
 
$
2,194,088
 
Exploration expenses
   
403,503
   
   
5,744,793
 
Amortization
   
42,860
   
   
124,120
 
Stock issued as penalty
   
2,152,128
   
   
2,152,128
 
Loss on disposal of assets
   
   
   
1,633
 
Total operating expenses
   
3,418,397
   
59,332
   
10,216,762
 
Loss from Operations
   
(3,418,397
)
 
(59,332
)
 
(10,216,762
)
                     
Other Income
         
       
Interest income
   
   
23,544
   
2,225
 
Total other income
   
   
23,544
   
2,225
 
Loss from Operations before Income
                   
Tax Refund and Discontinued Operations
   
(3,418,397
)
 
(35,788
)
 
(10,214,537
)
                     
Benefit from Income Taxes
   
   
   
243,920
 
Loss from continuing operations
   
(3,418,397
)
 
(35,788
)
 
(9,970,617
)
                     
Discontinued Operations (See Note 4)
                   
Loss from operations of discontinued segments
   
   
(184,976
)
 
 
                     
Net Loss
 
$
(3,418,397
)
$
(220,764
)
$
(9,970,617
)
                     
Basic and diluted net loss per common share:
                   
Continuing operations
 
$
(0.11
)
$
 
$
(0.50
)
Discontinued operations
   
   
(0.02
)
 
 
Net Loss
 
$
(0.11
)
$
(0.02
)
$
(0.50
)
                     
Basic and diluted weighted average outstanding shares
   
31,868,851
   
12,905,264
   
20,140,178
 


See accompanying notes to condensed consolidated financial statements

 
  4  

 

WITS BASIN PRECIOUS MINERALS INC. and SUBSIDIARIES
(AN EXPLORATION STAGE COMPANY)
Condensed Consolidated Statements of Cash Flows
(unaudited)

 
     
Three months ended March 31,
   
Restated
May 1, 2003 (inception) to 
 
     
Restated 
   
Restated 
   
March 31, 
 
     
2004 
   
2003 
   
2004 
 
OPERATING ACTIVITIES:
                   
Net loss
 
$
(3,418,397
)
$
(220,764
)
$
(9,970,617
)
   
   
       
Adjustments to reconcile net loss to cash flows from operating activities:
                   
Depreciation and amortization
   
42,860
   
16,160
   
124,120
 
Deferred compensation expense
   
27,492
   
20,788
   
44,256
 
Loss (gain) on disposal of assets
   
   
(749
)
 
1,633
 
Issue of common stock for exploration rights in excess of historical cost
   
   
   
4,841,290
 
Amortization of participation mining rights
   
320,941
   
   
820,941
 
Amortization of acquired software developed
   
   
53,884
   
 
Exchange of assets for services
   
   
2,644
   
 
Loss on sale of prepaid royalties
   
   
434,895
   
 
Amortization of prepaid consulting fees related to issuance of warrants and common stock
   
   
   
664,083
 
                   
Employee compensation expense related to stock options-variable plan
   
72,000
   
   
168,800
 
Contributed services by an executive
   
20,000
   
   
44,500
 
Issuance of common stock as penalty related to October 2003 private placement
   
2,152,128
   
   
2,152,128
 
Changes in operating assets and liabilities:
                   
Accounts receivable, net
   
   
38,957
   
12,200
 
Inventories
   
   
4,983
   
 
Prepaid expenses
   
153,690
   
31,749
   
(97,445
)
Other assets
   
   
(2,890
)
 
 
Accounts payable
   
73,521
   
(59,197
)
 
79,605
 
Deferred revenue
   
   
(71,568
)
 
 
Accrued expenses
   
351,239
   
14,593
   
178,275
 
 
                   
Net cash provided by (used in) operating activities
   
(204,526
)
 
263,485
   
(936,231
)
                     
INVESTING ACTIVITIES:
                   
Proceeds from sale of property and equipment
   
   
109,895
   
 
Proceeds from sale of prepaid royalties
   
   
540,105
   
 
Purchases of property and equipment
   
   
(3,880
)
 
 
Investment in participation mining rights
   
   
   
(1,827,889
)
Acquisition of Brazmin Ltda.
   
(55,731
)
 
   
(55,731
)
                   
Net cash provided by (used in) investing activities
   
(55,731
)
 
646,120
   
(1,883,620
)
                     
FINANCING ACTIVITIES:
                   
Payments on short-term notes payable
   
   
(83,486
)
 
 
Cash proceeds from issuance of common stock
   
   
   
2,251,603
 
Cash proceeds from exercise of options
   
152,400
   
   
169,900
 
                   
Net cash provided by (used in) financing activities
   
152,400
   
(83,486
)
 
2,421,503
 
                     
Change in Cash and Equivalents of Discontinued Operations and Liabilities of Discontinued Operations
   
(7,166
)
 
(100,401
)
 
(49,725
)
Increase (Decrease) in Cash and Equivalents
   
(115,023
)
 
725,718
   
(448,073
)
Cash and Equivalents, beginning of period
   
363,990
   
13,211
   
697,040
 
Cash and Equivalents, end of period
 
$
248,967
 
$
738,929
 
$
248,967
 
                     
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
           
Income Tax Refund
 
$
 
$
 
$
243,920
 
Non-cash financing and investing activities:
                   
Conversion of accrued wages into common
 
$
 
$
56,529
 
$
 
Stock
                   
Cancellation of stock subscription receivable
 
$
 
$
2,000,000
 
$
 
                   
Issuance of common stock for prepaid consulting fees
 
$
 
$
 
$
230,000
 
                   
Issuance of warrants for prepaidconsulting fees
 
$
 
$
 
$
787,000
 
                   
Issuance of common stock and warrants for purchase of Brazmin Ltda.
 
$
833,000
 
$
 
$
833,000
 

See accompanying notes to condensed consolidated financial statements

 
  5  

 


WITS BASIN PRECIOUS MINERALS INC.
(AN EXPLORATION STAGE COMPANY)
Notes to Condensed Consolidated Financial Statements
March 31, 2004
(unaudited)


NOTE 1 - NATURE OF BUSINESS

Wits Basin Precious Minerals Inc., and subsidiaries (“we,” “us,” “our,” “Wits Basin” or the “Company”) is a precious minerals exploration company based in Minneapolis, Minnesota. We currently have interests in mineral exploration projects in South Africa, Canada and South America. We hold interests in two gold exploration projects that we acquired in a transaction completed on June 26, 2003 from Hawk Precious Minerals USA Inc., (“Hawk USA”), a wholly owned subsidiary of Toronto-based Hawk Precious Minerals Inc., (“Hawk”). In one of these projects, which we commonly refer to as the “FSC Project,” we are a passive investor and have the right to acquire up to a 50 percent equity interest in the company Kwagga Gold (Proprietary) Limited (“Kwagga”) through two funding stages: a $2,100,000 investment and a further $1,400,000 cash investment. Kwagga is a wholly owned subsidiary of AfriOre International (Barbados) Ltd., (“AfriOre”). Kwagga holds the exploration rights for the FSC Project. The FSC Project consists of approximately 140,000 hectares located in the Republic of South Africa adjacent to the major goldfields discovered at the Witwatersrand Basin. AfriOre is a coal producer and precious minerals exploration company with offices in Johannesburg, South Africa and the operator of the FSC Project. We also hold exploration rights in a project located near Wawa, Ontario, Canada, which we refer to as the “Holdsworth Project.” The Holdsworth Project consists of 19 contiguous, patented mining claims covering approximately 304 hectares. We have devised a plan to conduct pre-exploration activities on the Holdsworth Project, which we estimate be approximately $150,000. Any pre-exploration activities will be expensed as incurred.

On February 6, 2004, we became the holder of the exploration rights of “Brazmin,” a portfolio of 4 land regions in Brazil. See Note 3 - Participation Mining Rights, for a detailed discussion.

In the future, we will continue to seek new areas for exploration and the rights that would allow us to be either owners or participants. These rights may take the form of direct ownership of mineral exploration or, like our interest in the FSC Project, these rights may take the form of ownership interests in entities holding exploration rights. Further, although our only current interests are gold exploration projects, future projects may involve other precious minerals.

Until March 14, 2003, we provided industry-specific solutions for managing, sharing and collaborating on business information on the Internet though our Hosted Solutions Business and until April 30, 2003, we provided accounting software through our Accounting Software Business. We sold substantially all of the assets relating to our Hosted Solutions Business and Accounting Software Business as of such dates. As a result of the sale of the Hosted Solutions Business and the Accounting Software Business, the Company became an exploratory stage company effective May 1, 2003. See Note 4 - Discontinued Operations for a detailed discussion.
 
Our principal office is located at 80 South 8th Street, Suite 900, Minneapolis, Minnesota 55402. Our telephone number is (612) 349-5277 and our Internet address is www.witsbasin.com.


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Financial Statement Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared by us in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), for interim financial information pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. The unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in our Form 10-K filed March 30, 2004. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2004 are not necessarily indicative of the results that may be expected for the year as a whole.


 
  6  

 

Segment Reporting

Due to the classification of our Hosted Business Solutions and Accounting Software Business as discontinued operations, we have a single operating segment. The single operating segment is that of precious minerals exploration. See Note 4 - Discontinued Operations for a detailed discussion.

Revenue Recognition and Deferred Revenue

The Company did derive revenues from customers of the online document management service for monthly access to the service and initial service configuration/implementation. Customers were invoiced at the beginning of each month for access service and revenue was recognized when invoiced. Configuration/implementation revenue was invoiced the month after the services were performed and recognized in the month invoiced.

The Company recognized the revenues derived from the accounting software business sales after all of the following criteria had been met: there was an executed license agreement, software had been delivered to the customer, the license fee was fixed and payable within twelve months, collection was deemed probable and product returns were reasonably estimable. Revenues related to multiple element arrangements were allocated to each element of the arrangement based on the fair values of elements such as license fees, maintenance, and professional services. Fair value was determined based on vendor specific objective evidence. Service revenue was recognized ratably over the term of the agreement, which was typically one year. All service revenue invoiced in excess of revenue recognized was recorded as deferred revenue. At March 31, 2004 and 2003, deferred revenue was $0 and $1,702,923, respectively. See Note 4 for details on our Discontinued Operations.

We currently do not have the ability to generate revenues in accordance with our investment in Kwagga (the FSC Project), Holdsworth or Brazmin. Furthermore, we do not expect to generate revenues for the foreseeable future.

Net Loss per Common Share

Basic and diluted net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding during the periods presented. The impact of common stock equivalents has been excluded from the computation of weighted average common shares outstanding, as the net effect would be antidilutive.

Use of Estimates

Preparing financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Income Taxes

We account for income taxes using the liability method to recognize deferred income tax assets and liabilities. Deferred income taxes are provided for differences between the financial reporting and tax bases of our assets and liabilities at currently enacted tax rates.

We have recorded a full valuation allowance against the net deferred tax asset due to the uncertainty of realizing the related benefits.

Software Development Costs 

Effective January 1, 1999, we implemented Statement of Position (“SOP”) 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. Pursuant to SOP 98-1, expenditures for internal use software were expensed during the preliminary project stage.


 
  7  

 

Exploration Costs

Exploration costs incurred in the search for new minerals are charged to expense as incurred. Due to the early stage of our passive investment in the FSC Project, we do not qualify for capitalizing development costs at this time. We require additional time to assess the initial investment we have made in purchasing Brazmin Ltda.

Stock Based Compensation

In accordance with Accounting Principles Board (“APB”) Opinion No. 25, the Company uses the intrinsic value-based method for measuring stock-based compensation cost which measures compensation cost as the excess, if any, of the quoted market price of the Company's common stock at the grant date over the amount the employee must pay for the stock. The Company's general policy is to grant stock options and warrants at fair value at the date of grant.

The Company has adopted the disclosure only provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation.” The Company recorded compensation expense pursuant to APB Opinion No. 25 and related interpretations on options granted and due to modifications of options of $27,492 and $20,788, for the quarters ended March 31, 2004 and 2003, respectively. The Company recorded expense related to stock based compensation issued to non-employees in accordance with SFAS No. 123. Had compensation costs for employees been recognized based upon the fair value of options at the grant date consistent with the provisions of SFAS No. 123, the Company’s results would have been as follows for:


   
Three Months Ended March 31,
 
May 1, 2003 (inception) to
 
   
Restated
 
Restated
 
March 31,
 
   
2004
 
2003
 
2004
 
Net loss:
             
As reported
 
$
(3,418,397
)
$
(220,764
)
$
(9,970,617
)
Pro forma
   
(3,822,397
)
 
(562,495
)
 
(13,824,211
)
                     
Basic and diluted net loss per share:
                   
As reported
 
$
(0.11
)
$
(0.02
)
$
(0.50
)
Pro forma
 
$
(0.12
)
$
(0.04
)
$
(0.69
)
                     
Stock-based compensation
                   
As reported
 
$
27,492
 
$
20,788
 
$
44,256
 
Pro forma
 
$
404,000
 
$
341,731
 
$
3,853,594
 

In determining the compensation cost of the options granted during the quarters ended March 31, 2004 and 2003, as specified by SFAS No. 123, the fair value of each option grant has been estimated on the date of grant using the Black-Scholes pricing model and the weighted average assumptions used in these calculations are summarized below for the quarters ended March 31:
 
   
2004
2003
 
Risk free interest rate
   
3.0
%
 
4.5
%
Expected life of options granted
   
5 years
   
10 years
 
Expected volatility range
   
322.0
%
 
234
%
Expected dividend yield
   
0
%
 
0
%


 
  8  

 

NOTE 3 - PARTICIPATION MINING RIGHTS

We currently have interests in mineral exploration projects in South Africa (FSC Project), Canada (Holdsworth) and South America (Brazmin).

FSC and Holdsworth Projects

On June 26, 2003, we entered into a Joint Venture and Joint Contribution Agreement, and a Member Control Agreement (collectively the “Joint Agreement”) with Hawk USA. One of the terms of the Joint Agreement was the creation of a Minnesota limited liability company named Active Hawk Minerals, LLC (“Active Hawk”). We both made contributions to Active Hawk for a 50 percent equity interest. One of Hawk USA’s contributions was its right to fund and acquire an initial 35 percent interest in the FSC Project. AfriOre or one of its affiliates will be the operator of the FSC Project, and Kwagga, its wholly owned subsidiary, holds the exploration rights for the FSC Project. We have the further option to acquire an additional 15 percent interest (an aggregate 50 percent) equity interest in Kwagga by providing further cash funding of the FSC Project.

The first step to acquire our 35 percent interest in Kwagga requires us to invest $2,100,000. Kwagga is required to use our initial $2,100,000 contribution to incur expenditures for the exploration, development and maintenance of the FSC Project. Pursuant to our agreement, after Kwagga has spent our aggregate $2,100,000 contribution, we will receive such number of shares of Kwagga’s capital stock representing a 35 percent ownership position. Once the current exploration activities being conducted on the FSC Project are complete, estimated to take 24 months, AfriOre and Kwagga will deliver to us a report describing the results of these activities. Within 120 days of our receipt of that report, we have the option to increase our ownership position in Kwagga to 50 percent in exchange for a further contribution of $1,400,000. These additional funds would then be used to fund a second phase of exploration work on the FSC Project.

If we determine not to elect to provide the funding for the second phase, we may request that AfriOre purchase our 35 percent interest for an aggregate price of $1,050,000. If AfriOre declines to purchase our 35 percent interest, we may elect to cease funding Kwagga. In that event, however, we no longer would have any rights to vote any shares of Kwagga’s capital stock owned by us and may be subject to dilution of our equity interest in Kwagga.

In the event Kwagga elects to discontinue FSC exploration altogether or if less than $2,100,000 is expended prior to June 2006, then we have the right to either (a) direct Kwagga to retain the balance of the $2,100,000 then held, whereupon we will be issued shares of Kwagga capital stock representing a 35 percent interest, or (b) terminate our interest in the FSC Project, whereupon Kwagga shall repay the remaining unspent balance of our initial $2,100,000 contribution.

AfriOre or one of its affiliates, as operator, will have sole discretion to determine all work to be carried out on the FSC Project and will be responsible for ensuring that the property and the project are at all times in compliance with applicable laws. AfriOre is required to provide us with quarterly written reports describing the work completed and the funds expended therewith. As consideration for its role as the project operator, AfriOre will be entitled to a fee equal to 10 percent of all qualified expenditures made in connection with the FSC Project.

In accordance with South African legislation, Kwagga will offer to a black economic empowerment group an option to purchase a 28 percent equity stake in Kwagga at a price to be mutually agreed upon by us, Kwagga and AfriOre. If such empowerment groups exercises such right to be granted, our interest in Kwagga would be proportionately diluted. For example, if we own 50 percent of Kwagga’s outstanding capital stock prior to the time any black economic empowerment group purchases a 28 percent stake, we would own 36 percent of Kwagga’s outstanding capital after the sale.

After all of the funds contributed by us and any black empowerment group have been expended on the FSC Project, we, AfriOre and any such empowerment group will contribute on a pro rata basis all such further amounts necessary to continue funding the exploration work on the project on a pro rata basis. In the event any of the parties do not fully contribute in proportion to their respective equity interest in Kwagga, such party’s interest will be proportionately diluted.


 
  9  

 

Certain components of our Participation Mining Rights are based on the distributions made by us to Kwagga and further advanced to AfriOre to fund the drillhole program of the FSC Project. Of the $1,800,000 already invested in Kwagga, $979,059 remains in their cash reserves at March 31, 2004. Each quarter, Kwagga will provide us with a report of the remaining value held in reserve.

We were obligated to invest an additional $300,000 by April 30, 2004 to complete the initial $2,100,000 funding. On April 21, 2004, we invested a further $150,000 and received an extension until May 30, 2004 for the final $150,000 payment. If we fail to make the final investment by the prescribed due date, Kwagga has specific rights to terminate our interest. Furthermore, should Kwagga fail to complete the entire drillhole program, we could realize a complete loss of our investment in Kwagga.

Currently, AfriOre reports that it has almost completed the initial drillhole on the FSC Project, to a depth of approximately 3,000 meters and has begun preparation to commence on the second drillhole. It is anticipated that AfriOre will also begin the third hole utilizing the equipment employed at the initial site as soon as final depth is achieved.

Other than our right to receive quarterly reports concerning the completion of work on the FSC Project, we have no rights to direct any exploration activities, receive information concerning the project or any right to examine any records, data or other information concerning the project. We do not have any permits, equipment or personnel necessary to actually explore for precious minerals at this time. Our participation is the FSC project and our relationship with Kwagga is essentially as a passive investor and we will therefore be substantially dependent on AfriOre, as the project operator. AfriOre is a wholly owned subsidiary of AfriOre Limited, a publicly-held company listed on the Toronto Stock Exchange (TSX: AFO). Historically, AfriOre Limited has operated coal and anthracite mines in South Africa, but more recently the company has been increasing its focus on gold exploration projects.

By the terms of the Joint Agreement, as described above, both parties made their contributions to Active Hawk for a 50 percent equity interest. Hawk USA contributed its right to fund and acquire a 50 percent interest in the FSC Project and its patented mining claims held in the Holdsworth Project. Hawk USA’s projects were valued at their historical cost, an aggregate of $246,210 and we agreed to fund the required $2,100,000 for the FSC Project. As additional compensation for Hawk USA’s mineral rights contributions, Hawk USA was issued 3,750,000 shares of our unregistered common stock valued at $2,737,500 (based on the closing sale price, $0.73 per share, of our common stock on June 26, 2003, as listed on the OTCBB) which represented an issuance of 28.2 percent of our total issued and outstanding common stock of 13,307,181 shares. The excess amount of stock issued to Hawk USA over the historical cost, or $2,491,290, has been recorded as an exploration expense in the restated financial statements. See Note 7 - Restatement.

Based on the information we obtained from Hawk, we estimated that the value attributable to the FSC Project was $228,975. Based on this, the remaining value of $17,235 was assigned the Holdsworth Project.
 
Brazmin

According to a purchase agreement dated February 6, 2004, between us and Argyle Securities Limited, a corporation formed under the laws of Saint Vincent, we purchased substantially all of the outstanding stock of Brazmin Ltda., a limited liability company formed under the laws of Brazil, effective February 6, 2004. Our purchase is subject to the Seller’s right to re-acquire the quota stock, as described below. Prior to the date of the purchase agreement, there was no relationship between Brazmin and Argyle Securities and the Company or any of our affiliates. Brazmin’s only assets are the mineral exploration rights of four distinct regions located within the South American country of Brazil. Brazmin has never had any revenues, as its activities have been solely to search out and acquire exploration rights on properties that possess specific criteria relating to base minerals and precious minerals. We operate Brazmin as a wholly owned subsidiary.


 
  10  

 

According to the terms of the purchase agreement, in exchange for 99.99 percent of the outstanding shares of Brazmin, we (a) paid $50,000 in cash, (b) issued 700,000 shares of our common stock (valued at $686,000 based on the closing sale price of our common stock, as quoted on the OTCBB, February 6, 2004), (c) issued a 5-year warrant to purchase an additional 150,000 shares of our common stock at an exercise price of $1.50 per share (valued at $147,000 using the Black-Scholes pricing model), and (d) reimbursed the seller for $19,847 of out-of-pocket expenses (and we incurred an additional $5,731 in miscellaneous closing fees). We also entered into two consulting agreements with two principals of Brazmin for continued services. The consulting agreements are for a period of six months, with monthly aggregate payments of $4,000 plus options to purchase an aggregate of 100,000 shares of our common stock at an exercise price of $1.10 per share. The options vest ratably over one year. The consulting agreements may be renewable for additional six month terms should the need exist.

Additionally, as specified in the purchase agreement, we are required to use our best efforts to register the resale of the shares of common stock issued as consideration, including the 150,000 shares issuable upon exercise of the warrants, under the Securities Act by no later than July 5, 2004. In the event that the shares are not registered by that date, Argyle Securities has the sole right (exercisable on or before July 15, 2004) to terminate the purchase agreement and reacquire the Brazmin stock subject thereto. In the event Argyle Securities exercises this right, it also must return to us the shares and warrants that we issued as consideration for the purchase of the Brazmin stock, although it is entitled to retain the $50,000 cash payment and the reimbursed out-of-pocket expenses paid by us.

We are in the process of completing a detailed budget and assessing the specific properties that we will explore verses those properties, which we would prefer to locate a third party operator and/or financier for. We anticipate having completed our assessment process by the end of the quarter ending June 30, 2004 and our estimate for amortization of the Brazmin properties is in a range of 12 to 24 months.

Components of participation mining rights are as follows:

   
March 31, 2004
 
 December 31, 2003
 
Investment made in Kwagga
 
$
1,800,000
 
$
1,800,000
 
Historical value assigned to the FSC Project
   
228,975
   
228,975
 
Historical value assigned to the Holdsworth Project
   
17,235
   
17,235
 
Miscellaneous costs (1)
   
82,889
   
82,889
 
Brazmin, Ltda.
   
908,578
   
 
Gross Participation Mining Rights
   
3,037,677
   
2.129.099
 
Less exploration expenditures report by AfriOre and Kwagga
   
820,941
   
500,000
 
Less amortization (2)
   
124,003
   
81,143
 
   
$
2,092,733
 
$
1,547,956
 


(1)   Includes the joint agreement costs and the issuance of an option to a former director.
(2)   Amortization is based on $329,099 of the participation mining rights, which includes the historical values of both the FSC and Holdsworth Projects and the miscellaneous costs. We began amortization of the FSC Project over a 24-month period on a straight-line basis beginning in July 2003. We began amortization of the Holdsworth Project over a 15-month period on a straight-line basis beginning in October 2003.



 
  11  

 

Active Hawk has no revenues to date and has recorded $320,941 in exploration expenses for the period ended March 31, 2004. All subsidiary transactions and balances have been eliminated in consolidation. Based on the estimated timeframe to complete the current drillhole program at the FSC Project, we began amortizing the FSC Project portion of the exploration agreement over 24 months, beginning in July 2003. Based on our assessment of the Holdsworth Project, we began amortizing the Holdsworth Project portion of the exploration agreement over 15 months, beginning in October 2003. The amortization period of both components will be periodically evaluated and adjusted if necessary.

NOTE 4 - DISCONTINUED OPERATIONS

Until March 14, 2003, we provided industry-specific solutions for managing, sharing and collaborating business information on the Internet though our Hosted Solutions Business. On March 14, 2003, we sold all of our assets related to the Hosted Solutions Business, which accounted for approximately 25 percent of our total assets and accounted for approximately 11 percent of our consolidated revenues as of and for the year ended December 31, 2002. The transaction did not require shareholder approval under Minnesota law since the assets relating to our Hosted Solutions Business did not constitute all or substantially all of the assets of our Company as a whole. We received $650,000 cash plus the reimbursement of transaction-related expenses incurred by us in the amount of $150,000 and the assumption of certain obligations, liabilities and employees of ours.

The following are condensed consolidated statements of discontinued operations for the quarters ended March 31,

HOSTED SOLUTIONS BUSINESS
 
2004
2003
 
Revenues
 
$
 
$
132,455
 
               
Operating expenses
             
Costs of sales
   
   
35,354
 
Selling, general and administrative
   
   
130,102
 
Depreciation and amortization
   
   
8,719
 
Gain on disposal of assets
   
   
(749
)
Total operating expenses
   
   
173,426
 
Loss from discontinued operations
   
   
(40,971
)
               
Other income
   
   
150,000
 
Loss on sale of prepaid royalties
   
   
(434,895
)
               
Net loss from discontinued operations
 
$
 
$
(325,866
)


Liabilities of the Hosted Solutions Business consisted of the following at:


HOSTED SOLUTIONS BUSINESS
 
March 31, 2004
December 31, 2003
 
Accounts payable
   
27,568
   
34,734
 
Net liabilities of operations of discontinued hosted solutions business
 
$
27,568
 
$
34,734
 


 
  12  

 


Prior to April 30, 2003, we designed, developed, marketed and supported accounting software products through our Accounting Software Business subsidiaries. On April 30, 2003, we completed the sale of substantially all of the assets of our Accounting Software Business to two key employees (the “Purchaser”) of that division. The assets sold consisted primarily of all intellectual property rights, cash, accounts receivable, inventories, property and equipment, and customer contracts. The Purchaser assumed substantially all the liabilities of the Accounting Software Business incurred in the ordinary course of the business consisting of trade payables, accrued expenses, debt and liabilities arising from contractual obligations related to the ongoing operations. In addition, the Purchaser paid us cash sufficient to discharge outstanding debt that was incurred during 2001 to acquire the Accounting Software Business. The remaining outstanding debt (as of April 30, 2003 of $1,451,714) was discharged as follows: (a) cash proceeds ($752,426) from the Purchaser were used to pay 17 of the note holders a negotiated 75 percent of the remaining balance due under the terms of their promissory notes, (b) the 25 percent discount ($250,809) re-negotiated with the 17 note holders, was booked as a component of Discontinued Operations, and (c) the remaining seven note holders (valued at $448,479) received new promissory notes issued by the Purchaser, again which was as a component of Discontinued Operations. The shareholders of the Company approved the sale at a special meeting on April 29, 2003.

The following are condensed consolidated statements of discontinued operations for the quarters ended March 31,


ACCOUNTING SOFTWARE BUSINESS
 
2004
2003
 
Revenues
 
$
 
$
1,186,729
 
               
Operating expenses
             
Costs of goods sold
   
   
309,801
 
Selling, general and administrative
   
   
463,009
 
Depreciation and amortization
   
   
61,325
 
Product development
   
   
165,348
 
Total operating expenses
   
   
999,483
 
Income from discontinued operations
   
   
187,246
 
               
Other expense
   
   
(46,356
)
               
Net income from discontinued operations
 
$
 
$
140,890
 

NOTE 5 - ACCRUED GUARANTEE

We have been named a defendant in two separate and unrelated legal actions, both in District Court, City and County of Denver, Colorado. One such action was a proceeding brought by Farmers State Bank of Ft. Morgan, Colorado, in which it was alleged that the Company was liable to the plaintiff as a result of its guaranty of certain secured debt obligations in the aggregate amount of approximately $314,000 of Meteor Marketing, Inc (to date, approximately $218,000 remains outstanding). The other legal proceeding involved an action brought by Timothy L. White against us and Meteor Marketing, Inc., in which the plaintiff alleged that we were liable in the amount of $102,750 for certain obligations of Meteor Marketing as a result of an April 1999 guaranty (the remaining amount owed to Mr. White is approximately $43,500).

Pursuant to FASB Interpretation No. (FIN) 45, the guaranties were valued in the amount of $30,000 during the year ended December 31, 2003.

NOTE 6 - SHAREHOLDERS' EQUITY

Deferred Compensation

In conjunction with the purchase of Brazmin Ltda., we engaged the services of two consultants to help us manage the four properties located in Brazil, South America. As additional consideration, each consultant entered into a stock option agreement. Each agreement granted a total of 50,000 shares to purchase common stock at an exercise price of $1.10 per share and vesting ratably over one year. Using the Black-Scholes pricing model, deferred compensation of $109,967 was recorded and is being expensed over the term of the agreements. All options were granted with exercise prices equal to the fair value of our common stock on the date of grant.


 
  13  

 

NOTE 7 - RESTATEMENT

Balance Sheet Restatement for the Year Ended December 31, 2003

We restated the balance sheet for the year ended December 31, 2003 to reflect (i) the segregation of the Hosted Solutions Business (“HSB”) components effective with the sale of the business segment on March 14, 2003; (ii) the consideration issued for mining rights reclassified as expense; and (iii) to reflect changes in our exploration agreement intangible, which is now combined into the Participation Mining Rights line.

The following table reconciles the previously reported amounts to the restated amounts. In particular, the consideration issued for mining rights was reclassified as expense as of and for the year ended December 31, 2003.

   
Assets
 
Accounts Payable
 
Liabilities
of HSB
 
Accrued 
Expenses
 
Shareholders’ Equity
 
Previously reported amounts
 
$
6,984,088
 
$
87,637
 
$
 
$
19,098
 
$
6,847,353
 
Previously recorded exploration intangibles (4)
   
(4,707,321
)
 
   
   
   
 
Accounts payable of HSB
   
   
(28,411
)
 
34,734
   
(6,323
)
 
 
Reclassification of exploration costs (1)
   
(1,300,000
)
 
   
   
   
 
Restatement of historical costs of mining rights (4)
   
1,547,956
   
   
   
   
 
Expensing of stock issued (2)
   
   
   
   
   
(2,491,290
)
Reverse value assigned to our interest in Hawk USA
   
   
   
   
   
(2,100,000
)
Stock issued (3)
   
   
   
   
   
(400,000
)
Change in amortization expense as a result of above adjustments
   
   
   
   
   
531,925
 
Restated amounts
 
$
2,524,723
 
$
59,226
 
$
34,734
 
$
12,775
 
$
2,387,988
 
 
(1) We reclassified the previously reported prepaid exploration costs to Participation Mining Rights. This amount represents the difference of advances we made to Kwagga ($1,800,000) less the expenditures reported by AfriOre and Kwagga ($500,000) for a net amount of $1,300,000.
 
(2) Expensing of stock issued to Hawk USA in June 2003 ($2,737,500), net of historical cost of the assets ($228,975 and $17,235) contributed by Hawk.
 
(3) Expensing of stock issued to Hawk USA in November 2003 ($2,350,000) less the previously recorded minority interest ($1,950,000) required to purchase the remaining 50 percent interest in the LLC.
 
(4) The following table reconciles the participation mining rights restatement.
 
     
December 31, 2003 
 
     
As reported 
   
Restated 
 
Total value of consideration contributed by Hawk USA (a)
 
$
2,100,000
 
$
 
Issuance of 3,750,000 common shares to Hawk USA (b)
   
2,737,500
   
 
Issuance of option to former director
   
55,000
   
55,000
 
Joint Agreement costs
   
27,889
   
27,889
 
Issuance of 2,500,000 common shares to Hawk USA (c)
   
2,350,000
   
 
Less: Minority interest previously recorded (c)
   
(1,950,000
)
 
 
Advances made to Kwagga
   
   
1,800,000
 
Historical value assigned to the FSC Project (a)
   
   
228,975
 
Historical value assigned to the Holdsworth Project (a)
   
   
17,235
 
Gross value at December 31, 2003
   
5,320,389
   
2,129,099
 
Expenditures reported by AfriOre and Kwagga (d)
   
   
(500,000
)
Accumulated amortization at December 31, 2003
   
(613,068
)
 
(81,143
)
Participation Mining Rights, net
 
$
4,707,321
 
$
1,547,956
 

(a) On June 26, 2003, we entered into a Joint Venture and Joint Contribution Agreement, and a Member Control Agreement (the “Joint Agreement”) with Hawk USA. By the terms of the Joint Agreement, a Minnesota limited liability company was formed, named Active Hawk Minerals, LLC (the “LLC”) in which both parties would make their contributions. Hawk USA contributed its rights and interests in the FSC and Holdsworth Projects, which was valued at its historical cost of $246,210 and we agreed to fund the required $2,100,000 for the FSC Project. Based on the information we obtained from Hawk, we estimated that the value of the FSC Project was approximately $228,975. Based on this, the remaining value of $17,235 was assigned the Holdsworth Project.
 

 
  14  

 

(b) We issued 3,750,000 shares of our common stock to Hawk USA on June 26, 2003 as specified in the Joint Agreement. We valued these shares at $2,737,500, or $0.73 per share, based on the closing sale price of our common stock on June 26, 2003 as listed on the OTCBB. We have reclassified this issuance as expense since it reflects excess value of the contributions made into the LLC.
 
(c) Additionally, as specified in the Joint Agreement, we obtained a “Buyout Option” in which we could acquire Hawk USA’s 50 percent interest in LLC, by issuing Hawk USA 2,500,000 shares of our common stock. On November 7, 2003, we exercised the option and issued the common stock valued at $2,350,000, or $0.94 per share, based on the closing sale price of our common stock on November 7, 2003 as listed on the OTCBB. This amount was reclassified as expense in the restated consolidated statement of operations as an additional stock issued for consideration of exploration rights for the year ended December 31, 2003, since these shares were also issued in excess of the contributions made to the LLC.
 
(d) We record expenditures as expenses based on reports from AfriOre describing the work completed and the funds expended. At December 31, 2003, of the $1,800,000 advances made to Kwagga, $500,000 have been recorded as exploration expenses.


Balance Sheet Restatement for the Quarter Ended March 31, 2004

The following table reconciles the previously reported amounts to the restated amounts; the reclassification of components of our exploration assets to Participation Mining Rights (which incorporates the cumulative changes to the Company’s Forms 10-Q/A for the quarters ended March 31, 2003, June 30, 2003 and September 30, 2003, and our Annual Report on Form 10-K/A for the year ended December 31, 2003); and the previously reported shares of our common stock deemed as penalty shares we issued in February 2004.
 
   
Assets
 
Brazmin, Ltda.
 
Additional Paid in Capital
 
Deficit Accumulated (1)
 
Previously reported amounts
 
$
3,956,255
 
$
908,578
 
$
28,433,845
 
$
(6,663,021
)
Prepaid Exploration Costs (2)
   
(979,059
)
 
   
   
 
Brazmin, Ltda. (2)
   
(908,578
)
 
(908,578
)
 
   
 
Exploration Intangibles, net (2) (4)
   
(1,360,564
)
 
   
   
 
Participation Mining Rights, net (2) (4)
   
2,092,733
   
   
   
 
Restatement of December 31, 2003 balance
   
   
   
   
(1,396,723
)
Amortization previously recorded
   
   
   
   
284,115
 
Restated amortization
   
   
   
   
(42,860
)
Penalty shares issued (3)
   
   
   
2,152,128
   
(2,152,128
)
Restated amounts
 
$
2,800,787
 
$
 
$
30,585,973
 
$
(9,970,617
)

(1) This column represents the deficit accumulated during exploration stage, subsequent to April 30, 2003.
 
(2) The previously reported Prepaid Exploration Costs, Brazmin, Ltda. and Exploration Intangibles, have been reclassified into a single line, that of Participation Mining Rights. The prepaid exploration costs of $979,059 reclassified to participation mining rights represent the difference of advances we made to Kwagga ($1,800,000) less the expenditures reported by AfriOre and Kwagga ($820,941).
 
(3) In October 2003, we completed a private placement of 10,190,000 units of our securities, each unit consisting of one share of common stock and a one-year warrant to purchase one-half of one share of common stock at a price of $0.75 per share. The units were sold at a price of $0.25 per unit, resulting in gross proceeds of $2,547,500 before agent commissions and other offering related expenses. We agreed to file a registration statement under the Securities Act of 1933 covering the resale of the shares purchased in the private placement. In accordance with the terms of the private placement, because such registration statement was not declared effective by the Securities and Exchange Commission by February 11, 2004, we issued to the investors an additional one-fifth of one share of our common stock for each unit purchased in the private placement, or 2,038,000 shares, which we deemed “penalty shares.” We previously recorded only the par value of this issuance as a component of stockholders’ equity, thereby reducing the per unit value from $0.25 to $0.21. Based on further analysis, we have reclassified the issuance as expense, valued at $2,152,128. We used a five closing sale price average of our common stock as listed on the OTCBB. Using the ending date of February 11, 2004, and the previously four trading days, the average was $1.056.
 
(4) The following table reconciles the previously reported Exploration Intangibles that were reclassified to Participation Mining Rights as of March 31, 2004.

   
As reported
 
 Restated
 
Value assigned to the FSC Project (a) (b)
 
$
2,032,889
 
$
228,975
 
Value assigned to the Holdsworth Project (a)
   
150,000
   
17,235
 
Miscellaneous costs (b)
   
   
82,889
 
Investment made in Kwagga
   
   
1,800,000
 
Brazmin, Ltda.
   
   
908,578
 
Less exploration expenditures reported by AfriOre and Kwagga
   
   
(820,941
)
Less amortization
   
(822,325
)
 
(124,003
)
Balance at March 31, 2004
 
$
1,360,564
 
$
2,092,733
 

(a) On June 26, 2003, we entered into a Joint Venture and Joint Contribution Agreement, and a Member Control Agreement (the “Joint Agreement”) with Hawk USA. By the terms of the Joint Agreement, a Minnesota limited liability company was formed, named Active Hawk Minerals, LLC (the “LLC”) in which both parties would make their contributions. Hawk USA contributed its rights and interests in the FSC and Holdsworth Projects, which was valued at its historical cost of $246,210 and we agreed to fund the required $2,100,000 for the FSC Project. Based on the information we obtained from Hawk, we estimated that the value of the FSC Project was approximately $228,975. Based on this, the remaining value of $17,235 was assigned the Holdsworth Project. See Note 3 - Participation Mining Rights for details on contributions made to the LLC.
 
(b) Included in the previously assigned value of the FSC Project are miscellaneous costs ($82,889) which included the joint agreement costs and the issuance of an option to a former director.


 
  15  

 


Statement of Operations Restatement for the Three Months Ended March 31, 2004

The following table reconciles the previously reported net loss amount to the restated net loss amount for the quarter ended March 31, 2004.

   
Net Loss
 
Previously reported amount
 
$
(1,507,524
)
Amortization previously recorded
   
284,115
 
Restated amortization
   
(42,860
)
Value assigned to penalty shares issued
   
(2,152,128
)
Restated net loss for the quarter ended March 31, 2004
 
$
(3,418,397
)

Also, the loss per share increased $0.06 for the quarter ended March 31, 2004 (from $0.05 to $0.11) due mainly from the expensing of the penalty shares issued as noted above.

Statement of Operations Restatement for the Three Months Ended March 31, 2003

The following table reconciles the previously reported net loss amount to the restated net loss amount for the quarter ended March 31, 2003.

   
Net Loss
 
Previously reported amount
 
$
(361,513
)
Deferred compensation expense error (1)
   
140,749
 
Restated net loss for the quarter ended March 31, 2003
 
$
(220,764
)

(1) We corrected an error in recording deferred compensation related to our former Chief Executive Officer who resigned in January 2003.

The following tables reconcile the previously reported loss per common share amounts to the restated amounts for the three months ended March 31, 2003:
 
     
Continuing Operations
   
Discontinuing Operations
 
             
Basic and diluted net income (loss) per common share:
             
Previously reported amounts
 
$
(0.04
)
$
0.01
 
Restated amounts
   
0.04
   
(0.03
)
Restated Net Loss
 
$
 
$
(0.02
)

Statement of Cash Flows Restatement for the Three Months Ended March 31, 2004

We made corrections in the presentation of the cash flow statements within the Operation Activities section only, which relates to the expensing of the investment made to Kwagga. The activity was recorded, but inadvertently was captured within the prepaid expenses category. We reclassified $320,941, previously recorded under the line heading of prepaid expenses, into the participation mining rights line heading for the three months ended March 31, 2004.


 
  16  

 

The following table lists the amounts specific to Kwagga reclassified out of prepaid expenses and into participation mining rights in the statement of cash flows for the following periods:

Period Ending
 
Quarterly Amount
 
Inception Total
 
December 31, 2003
 
$
500,000
 
$
500,000
 
March 31, 2004
 
$
320,941
 
$
820,941
 


NOTE 8 - SUBSEQUENT EVENTS

We are a defendant in a lawsuit in the Minnesota District Court in Hennepin County initiated by Jack A. Johnson. Mr. Johnson was formerly our President and CEO until he left our Company to accept employment with Stellent, Inc., in connection with the sale of our Hosted Solutions Business to Stellent in March 2003. Mr. Johnson asserted claims for breach of an alleged employment contract. On April 29, 2004, following completion of a trial, a jury awarded Mr. Johnson $360,000 in damages for breach of contract. For the quarter ending March 31, 2004, we have accrued $360,000, which is included in general and administrative expenses, against the damages awarded by the jury, however, the Company is continuing to evaluate its options for an appeal.
 
On April 21, 2004, we made an additional payment to Kwagga in the amount $150,000, thereby having a balance due of $150,000 towards our $2,100,000 commitment in funding the initial drillhole program at the FSC Project. We also received an extension from Kwagga on the final $150,000, postponed until May 30, 2004.

We regret to inform our shareholders that Mr. Michael Pickens, a board member of ours, passed away in April 2004 due to an illness. Additionally, Mr. Zoran Arandjelovic has resigned as a board member due to his business interests and lack of available time to devote to the matters of the Company. The Company will continue its search for qualified candidates.

On May 13, 2004, our board of directors authorized an extension in the expiration date for the Company's 690,000 redeemable publicly-traded warrants, which currently trade under the OTCBB symbol WITMW (prior to August 20, 2003 under the OTCBB symbol AIQTW). The new expiration date is November 30, 2004 from the previous extended date of May 31, 2004.

The terms of the redeemable warrants are as follows: each warrant represents the right to purchase one (1) share of the Company’s common stock, $0.01 par value, at an exercise price of $7.15 per share until November 30, 2004. The warrants are redeemable by the Company at a redemption price of $0.10 per redeemable warrant at any time on 30 days’ notice, provided that the market price of our common stock equals or exceeds $8.25 per share for 10 consecutive trading days ending within 20 days prior to the notice of redemption.


  17  

 

WITS BASIN PRECIOUS MINERALS INC.
(AN EXPLORATION STAGE COMPANY)
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations

The following management’s discussion and analysis of financial condition and results of operations should be read in connection with the accompanying unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this report and the audited consolidated financial statements and notes thereto included in the Company’s Form 10-K for the fiscal year ended December 31, 2003.

OVERVIEW

Wits Basin Precious Minerals Inc., and subsidiaries (“we,” “us,” “our,” “Wits Basin” or the “Company”) is a precious minerals exploration company based in Minneapolis, Minnesota. We currently have interests in mineral exploration projects in South Africa, Canada and South America. We hold interests in two gold exploration projects that we acquired in a transaction completed on June 26, 2003 from Hawk Precious Minerals USA Inc., (“Hawk USA”), a wholly owned subsidiary of Toronto-based Hawk Precious Minerals Inc., (“Hawk”). In one of these projects, which we commonly refer to as the “FSC Project,” we are a passive investor and have the right to acquire up to a 50 percent equity interest in the company Kwagga Gold (Proprietary) Limited (“Kwagga”) through two funding stages: a $2,100,000 investment and a further $1,400,000 cash investment. Kwagga is a wholly owned subsidiary of AfriOre International (Barbados) Ltd., (“AfriOre”). Kwagga holds the exploration rights for the FSC Project. The FSC Project consists of approximately 140,000 hectares located in the Republic of South Africa adjacent to the major goldfields discovered at the Witwatersrand Basin. AfriOre is a coal producer and precious minerals exploration company with offices in Johannesburg, South Africa and the operator of the FSC Project. We also hold exploration rights in a project located near Wawa, Ontario, Canada, which we refer to as the “Holdsworth Project.” The Holdsworth Project consists of 19 contiguous, patented mining claims covering approximately 304 hectares. We have devised a plan to conduct pre-exploration activities on the Holdsworth Project, which we estimate be approximately $150,000. Any pre-exploration activities will be expensed as incurred.

In February 2004, we acquired substantially all of the outstanding shares of capital stock of a Brazilian limited liability company named Brazmin Ltda. Brazmin, located in Rio de Janeiro, which holds the exploration rights to 4 distinct properties in Brazil. Brazmin’s current property portfolio consists of 4 distinct land regions in Brazil: the Rio Maria Property - Pará State; Campo Grande, Minas Gerais State; São Julião, Piaui and Ceara States; and the Serrita, Pernambuco State. We are in the process of completing a detailed budget and assessing the specific properties that we will explore verse those properties, which we would prefer to locate a third party operator and/or financier for. We anticipate having completed our assessment process by the end of the quarter ending June 30, 2004.

In the future, we will continue to seek new areas for exploration and the rights that would allow us to be either owners or participants. These rights may take the form of direct ownership of mineral exploration or, like our interest in the FSC Project, these rights may take the form of ownership interests in entities holding exploration rights. Further, although our only current interests are gold exploration projects, future projects may involve other precious minerals.

Until March 14, 2003, we provided industry-specific solutions for managing, sharing and collaborating on business information on the Internet though our Hosted Solutions Business and until April 30, 2003, we provided accounting software through our Accounting Software Business. We sold substantially all of the assets relating to our Hosted Solutions Business and Accounting Software Business as of such dates. As a result of the sale of the Hosted Solutions Business and the Accounting Software Business, the Company became an exploratory stage company effective May 1, 2003.
 
Our principal office is located at 80 South 8th Street, Suite 900, Minneapolis, Minnesota 55402. Our telephone number is (612) 349-5277 and our Internet address is www.witsbasin.com.


 
  18  

 

RESULTS OF OPERATIONS FOR THE QUARTER ENDED MARCH 31, 2004 COMPARED TO
MARCH 31, 2003.

Revenues

With the sale of the Hosted Solutions Business on March 14, 2003, and the sale of our Accounting Software Business on April 30, 2003, we had no revenues from continuing operations for the quarters ended March 31, 2004 and 2003. Furthermore, we do not anticipate having any future revenues until an economic mineral deposit is discovered or unless we make further acquisitions or complete other mergers or joint ventures with business models that produce such results.

Operating Expenses

General and administrative expenses were $819,906 for the three months ended March 31, 2004 as compared to $59,332 for the same period in 2003. The 2004 expenses include an accrual for $360,000 relating to our litigation with Jack Johnson. We anticipate that future expenses should be less due to our litigation efforts.

Exploration expenses were $403,503, which relate to the expenditures being reported to Active Hawk Minerals LLC, on the work-in-process from the project operator, AfriOre, at the FSC Project site and any expenses related to the Brazmin properties, including landowner payments, geological expenses and consulting fees.

Amortization expenses were $42,860 for the three months ended March 31, 2004 as compared to $0 for the same period in 2003. We began amortization of the FSC Project over a 24-month period on a straight-line basis. This is based on the premise that the initial 5 to 7 drillhole at the FSC Project will be completed within 24 months. The quarterly amortization will be approximately $38,200. Also, we have begun amortization of the Holdsworth Project over a 15-month period on a straight-line basis at a rate of $4,600 per quarter. This is based on the assessment that the Holdsworth Project is a relatively small project, and as such, our goal is to locate a third party operator by fiscal year end and move the Project forward.

In October 2003, we completed a private placement of 10,190,000 units of our securities, each unit consisting of one share of common stock and a one-year warrant to purchase one-half of one share of common stock at a price of $0.75 per share. The units were sold at a price of $0.25 per unit, resulting in gross proceeds of $2,547,500 before agent commissions and other offering related expenses. We agreed to file a registration statement under the Securities Act of 1933 covering the resale of the shares purchased in the private placement. In accordance with the terms of the private placement, because such registration statement was not declared effective by the Securities and Exchange Commission by February 11, 2004, we issued to the investors an additional one-fifth of one share of our common stock for each unit purchased in the private placement, or 2,038,000 shares, which we deemed “penalty shares.” We previously recorded only the par value of this issuance as a component of stockholders’ equity, thereby reducing the per unit value from $0.25 to $0.21. Based on further analysis, we have reclassified the issuance as expense, valued at $2,152,128. We used a five-day closing sale price average of our common stock as listed on the OTCBB. Using the ending date of February 11, 2004, and the previously four trading days, the average was $1.056.

Other Income

Our other income consists of interest income. Interest income for the quarter ended March 31, 2004 was $0 compared to $23,544 for the same period in 2003. The interest income we reported for 2003 was earned from a Federal Income Tax refund filed with the IRS.

Discontinued Operations

Effective with the sale of our Hosted Business Solutions model on March 14, 2003, we have classified all results as discontinued operations for all periods reported.


 
  19  

 

The following are condensed consolidated statements of discontinued operations for the quarters ended March 31,

HOSTED SOLUTIONS BUSINESS
 
2004
 
2003
 
Revenues
 
$
 
$
132,455
 
               
Operating expenses
             
Costs of sales
   
   
35,354
 
Selling, general and administrative
   
   
130,102
 
Depreciation and amortization
   
   
8,719
 
Gain on disposal of assets
   
   
(749
)
Total operating expenses
   
   
173,426
 
Loss from discontinued operations
   
   
(40,971
)
               
Other income
   
   
150,000
 
Loss on sale of prepaid royalties
   
   
(434,895
)
               
Net loss from discontinued operations
 
$
 
$
(325,866
)

Effective with the sale of our Accounting Software Business model on April 30, 2003, we have classified all results as discontinued operations for all periods reported.

The following are condensed consolidated statements of discontinued operations for the quarters ended March 31,


ACCOUNTING SOFTWARE BUSINESS
 
2004
 
2003
 
Revenues
 
$
 
$
1,186,729
 
               
Operating expenses
             
Costs of goods sold
   
   
309,801
 
Selling, general and administrative
   
   
463,009
 
Depreciation and amortization
   
   
61,325
 
Product development
   
   
165,348
 
Total operating expenses
   
   
999,483
 
Income from discontinued operations
   
   
187,246
 
               
Other expense
   
   
(46,356
)
               
Net income from discontinued operations
 
$
 
$
140,890
 


Liquidity and Capital Resources

We have funded our operations and satisfied our capital requirements primarily through the sale of our business assets and the sale of securities. Net cash used by operating activities was $204,526 for the quarter ended March 31, 2004, compared to net cash provided by operating activities of $263,485 for the same period in 2003.
 
We had working capital of $163,878 at March 31, 2004, compared to $870,032 at December 31, 2003. Cash and equivalents were $248,967 at March 31, 2004, representing a decrease of $115,023 from the cash and equivalents of $363,990 at December 31, 2003.

In June 2003, we entered into a Joint Venture and Joint Contribution Agreement, and a Member Control Agreement (collectively the “Joint Agreement”) with Hawk USA. By the terms of the Joint Agreement, a limited liability company was formed (named Active Hawk Minerals, LLC) in which both parties would make their contributions. Hawk USA contributed its rights and interests in the FSC and Holdsworth Projects. We contributed 3,750,000 shares of our common stock (which represented an issuance of 28.2 percent of our total issued and outstanding common stock) and assumed the liability to make an initial $2,100,000 cash payment to Kwagga. As of March 31, 2004, we have invested $1,800,000 in Kwagga, which is being used to fund a 5 to 7 drillhole exploration program on the FSC Project that commenced in October 2003. We made an additional payment of $150,000 to Kwagga on April 21, 2004, and were granted an extension of May 31, 2004 to make the final $150,000 payment. Once the entire $2,100,000 has been expended (approximately 24 months) we will have a further right to increase our equity position in Kwagga for an additional $1,400,000 cash investment.

We anticipate that the existing sources of liquidity will not provide cash to fund operations for the next twelve months. We have estimated our cash needs over the next twelve months to be approximately $900,000, which includes the final $150,000 payment owed to Kwagga, as discussed above. We will continue our attempt to raise additional capital. Some of the possibilities available to us are through private equity transactions, to develop a credit facility with a lender or the exercise of options and warrants. However, such additional capital may not be available to us at acceptable terms or at all. In the event that we are unable to obtain additional capital, we would be forced to reduce operating expenditures and/or cease operations altogether.


  20  

 

PART II. OTHER INFORMATION


Item 6.  Exhibits and Reports on Form 8-K
   
(a) Exhibits

10.1 Quota Purchase Agreement dated February 6, 2004 between the Company and Argyle Securities Limited (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed February 12, 2004).
     
  31.1 Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
  31.2 Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
  32.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
  32.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K
   
 
On February 12, 2004, the Company filed a Current Report on Form 8-K dated February 6, 2004, under items 2, 5 and 7 to disclose: (1) that on February 6, 2004, the Company purchased all of the outstanding quota stock of Brazmin Ltda., (“Brazmin”) a limited liability company formed under the laws of Brazil, pursuant to a Quota Purchase Agreement dated February 6, 2004, by and between the Company and Argyle Securities Limited for: (a) a $50,000 cash payment, (b) 700,000 shares of our common stock, valued at $686,000 based on the closing sale price of our common stock; (c) a 5-year warrant to purchase 150,000 shares of our common stock, with an exercise price of $1.50 per share, valued at $147,000 using the Black-Scholes pricing model; (d) reimbursement of certain out-of-pocket expenses, estimated to be less than $20,000; and (e) entered into two consulting agreements with two of the principals of Brazmin for continued services; and (2) that pursuant to the terms of an October 2003 private placement, the Company agreed to file a “resale” registration statement with the SEC and that the Company was not in compliance with its efforts to cause the registration statement to become effective within 120 days from the date that the private placement was completed, and therefore would be required to issue an additional 2,038,000 shares of its common stock deemed as penalty shares.

On March 2, 2004, the Company filed a Current Report on Form 8-K dated March 1, 2004, under items 7 and 12 to disclose that the Company had issued a press release that included financial information for the fiscal year ended December 31, 2003.



  21  

 

SIGNATURES

In accordance with the requirements of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

     
  WITS BASIN PRECIOUS MINERALS, INC.
 
 
 
 
 
 
Date: January 14, 2005 By:   /s/ H. Vance White
 
  H. Vance White
Chief Executive Officer
     
 
 
 
 
 
 
 
By:   /s/ Mark D. Dacko
 
  Mark D. Dacko
Chief Financial Officer 
 
 

 
   22  

 
 

EXHIBIT INDEX
 
Exhibit No. Description
   
10.1 Quota Purchase Agreement dated February 6, 2004 between the Company and Argyle Securities Limited (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed February 12, 2004).
   
31.1 Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
31.2 Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
   
32.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
32.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


 
 
       
       
 

23

 

EX-31.1 2 v011183_ex31-1.htm

Exhibit 31.1
CERTIFICATIONS

I, H. Vance White, certify that:

1. I have reviewed this Amendment No.1 to Quarterly Report on Form 10-QSB for the quarter ended March 31, 2004, of Wits Basin Precious Minerals Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statement made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. Wits Basin Precious Minerals Inc.’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for Wits Basin Precious Minerals Inc., and have:

a.   designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to Wits Basin Precious Minerals Inc., including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.   evaluated the effectiveness of Wits Basin Precious Minerals Inc.’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c.   disclosed in this report any change in Wits Basin Precious Minerals Inc.’s internal control over financial reporting that occurred during Wits Basin Precious Minerals Inc.’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, Wits Basin Precious Minerals Inc.’s internal control over financial reporting;

5. Wits Basin Precious Minerals Inc.’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to Wits Basin Precious Minerals Inc.’s auditors and the audit committee of Wits Basin Precious Minerals Inc.’s board of directors (or persons performing the equivalent functions):

a.   all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect Wits Basin Precious Minerals Inc.’s ability to record, process, summarize and report financial information; and

b.   any fraud, whether or not material, that involves management or other employees who have a significant role in Wits Basin Precious Minerals Inc.’s internal control over financial reporting.


     
 
 
 
 
 
 
 
Date: January 14, 2005 By:   /s/ H. Vance White
 
  H. Vance White
Chief Executive Officer 
       
       
       

EX-31.2 3 v011183_ex31-2.htm

Exhibit 31.2
CERTIFICATIONS

I, Mark D. Dacko, certify that:

1. I have reviewed this Amendment No.1 to Quarterly Report on Form 10-QSB for the quarter ended March 31, 2004, of Wits Basin Precious Minerals Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statement made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. Wits Basin Precious Minerals Inc.’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for Wits Basin Precious Minerals Inc., and have:

a.   designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to Wits Basin Precious Minerals Inc., including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.   evaluated the effectiveness of Wits Basin Precious Minerals Inc.’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c.   disclosed in this report any change in Wits Basin Precious Minerals Inc.’s internal control over financial reporting that occurred during Wits Basin Precious Minerals Inc.’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, Wits Basin Precious Minerals Inc.’s internal control over financial reporting;

5. Wits Basin Precious Minerals Inc.’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to Wits Basin Precious Minerals Inc.’s auditors and the audit committee of Wits Basin Precious Minerals Inc.’s board of directors (or persons performing the equivalent functions):

a.   all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect Wits Basin Precious Minerals Inc.’s ability to record, process, summarize and report financial information; and

b.   any fraud, whether or not material, that involves management or other employees who have a significant role in Wits Basin Precious Minerals Inc.’s internal control over financial reporting.

     
 
 
 
 
 
 
 
Date: January 14, 2005 By:   /s/ Mark D. Dacko
 
  Mark D. Dacko
Chief Financial Officer 
       
       
       

EX-32.1 4 v011183_ex32-1.htm

Exhibit 32.1
 

CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Amendment No. 1 to Quarterly Report of Wits Basin Precious Minerals Inc. (the “Company”) on Form 10-QSB for the quarter ending March 31, 2004, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, H. Vance White the Chief Executive Officer of the Company, certify, pursuant to and for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
     
 
 
 
 
 
 
 
Date: January 14, 2005 By:   /s/ H. Vance White
 
  H. Vance White
Chief Executive Officer
       
       
       

EX-32.2 5 v011183_ex32-2.htm

Exhibit 32.2

CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Amendment No. 1 to Quarterly Report of Wits Basin Precious Minerals Inc. (the “Company”) on Form 10-QSB for the quarter ending March 31, 2004, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Mark D. Dacko the Chief Financial Officer of the Company, certify, pursuant to and for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
     
 
 
 
 
 
 
 
Date: January 14, 2005 By:   /s/ Mark D. Dacko
 
  Mark D. Dacko
Chief Financial Officer
       
       
       

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