WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
The accompanying condensed notes are an integral part of these financial statements.
The accompanying condensed notes are an integral part of these financial statements.
The accompanying condensed notes are an integral part of these financial statements.
The accompanying condensed notes are an integral part of these financial statements.
TREND MINING COMPANY
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Trend Mining Company (formerly Silver Trend Mining Company) (“the Company” or “Trend”) was incorporated on September 7, 1968 under the laws of the State of Montana for the purpose of acquiring, exploring and developing mining properties. From 1984 to late 1996, the Company was dormant. In November 1998, the Company changed its focus to exploration for platinum and palladium related metals primarily in the United States. In 2004, the Company further diversified into uranium properties. The Company directs its operations primarily from its office in Hilton Head, SC. The Company has one production stage royalty interest. All of the Company’s other mineral properties are in the exploration stage. The Company is not conducting development or mining operations at this time. The Company has a September 30 fiscal year-end.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for annual financial statements. Therefore, these interim unaudited financial statements should be read in conjunction with the Company’s audited annual financial statements and notes included in Form 10-KSB for the year ended September 30, 2006.
In the opinion of management, the accompanying unaudited financial statements contain all adjustments (which are of a normal recurring nature) necessary for a fair presentation of our financial position, results of operations and cash flows for the periods presented.
Operating results for the three and six months ended March 31, 2007, are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2007.
Exploration Stage Activities and Exploration Costs
The Company has been in the exploration stage since October 1, 1996, when the Company emerged from a period of dormancy. The Company is primarily engaged in the acquisition and exploration of mineral properties. The Company expenses exploration costs as incurred. Should the Company locate a commercially viable reserve, the Company would expect to actively prepare the site for extraction.
Going Concern
As shown in the accompanying financial statements, at March 31, 2007, the Company has limited cash, has negative working capital, incurred a net loss of $875,968 for the six months then ended, and has an exploration stage accumulated deficit of $15,441,695. These factors indicate that the Company may be unable to continue in existence in the absence of receiving additional funding. The financial statements do not include any adjustments related to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
The Company estimates that approximately $600,000 is required to fund operations of the Company for the next 12 months assuming minimal exploration activities, or $1,230,000 if the Company wishes to retain its interest at the Stillwater project. Additional cash will be required if the Company has to service its convertible debt with cash in lieu of stock. The Company’s management believes that it will be able to generate sufficient cash from public or private debt or equity financing in order for the Company to continue to operate based on current expense projections.
Mineral Properties
The Company capitalizes only amounts paid in cash or stock as consideration for the acquisition of real property, including patented mining claims and royalty interests. See Note 3. Acquired properties are recorded at fair value negotiated in arm’s length transactions. Costs and fees paid to locate and maintain unpatented mining claims, to acquire options to purchase claims or properties, and to maintain the mineral rights and leases, are expensed as incurred. In the accompanying financial statements, there are no amounts capitalized for mineral properties.
TREND MINING COMPANY
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
Mineral properties are periodically assessed for impairment of value and any diminution in value is charged to operations at the time of impairment. Should a property be abandoned, its unamortized capitalized costs are charged to operations. The Company charges to operations the allocable portion of capitalized costs attributable to properties sold. Capitalized costs are allocated to properties abandoned or sold based on the proportion of claims abandoned or sold to the claims remaining within the project area.
Stock Issued for Other Than Cash
The Company values unrestricted common stock granted to employees for services, property, or investments at the fair value of the common stock determined as the closing price of stock on the day of issuance. If no trading occurred on a date of issuance, then the fair value used is the lower of the closing prices on the first previous day or the first following day on which the Company’s stock was traded. Common stock granted to non-employees is valued at the fair value of the stock or the fair value of the consideration received, whichever is more reliably measured. The Company may issue common stock with certain restrictions placed upon the trading thereof. In these circumstances the shares are valued at a reasonable discount to the closing stock price. These stock issuances are accounted for as expenses, if the stock was issued for services or exploration costs, and as assets, if the stock was issued for investments or real property.
Reclassification
Certain accounts in prior period financial statements have been reclassified for comparative purposes to conform with the presentation in the current period financial statements.
NOTE 3 - MINERAL PROPERTIES
At March 31, 2007, the Company has an interest in one production stage mineral property, no development stage properties, and six exploration stage properties. The following describes each of these mineral properties.
Andacollo Mine, Chile
During the fourth quarter of fiscal 2005, Trend entered into negotiations to purchase 100% of the issued shares of capital stock in DMC Cayman, Inc., a Cayman Islands company (“DMC Cayman”). DMC Cayman indirectly owned 100% of the issued shares of capital stock of Compania Minera Dayton S.A., a Chilean corporation (“CMD”), that owns and operates the Andacollo gold mine in Chile. On September 20, 2005, Trend received funding for the acquisition through a separate group of investors, based on a commitment from Trend to transfer to the investor group 70% of the shares of DMC Cayman.
The Company paid an initial $900,000 in cash for the acquisition. The Company also paid out additional related expenses for which it was to be repaid 70% by the other investors. Before the end of the year, the investor group bought Trend’s 30% stake in exchange for cash of $1,122,975, a 1% net smelter returns royalty, and a 30% back-in right exercisable through April 1, 2006. As a result of this transaction, the Company recognized a gain of $69,804 at September 30, 2005, and it retained a 1% net smelter returns royalty. The Company received the cash portion of the purchase price during the quarter ended December 31, 2005. The Company did not exercise the 30% back-in right.
The final operating permits for the mine were obtained on December 27, 2005, and it became fully operational during the third quarter of fiscal 2006. Trend is contractually entitled to receive 1% of gold revenues from the mine in monthly installments, subject to a 35% Chilean withholding tax.
However, the Company has been notified by the owners of the Andacolla Gold Mine Project that they were challenging the rights of the Company to continue to receive royalties. The owners ceased paying the royalties and informed the Company that they do not intend to pay further royalties. The Company intends to vigorously contest the position taken by the owners and is considering all its options in defending its contractual rights to receive royalties. The Company did not receive any royalties during the quarter ended March 31, 2007, and pending resolution of the dispute, has not accrued a receivable for any such royalties.
TREND MINING COMPANY
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
Diabase Peninsula, Cree Lake Area, Saskatchewan, Canada
On September 15, 2004, the Company diversified into uranium exploration with the staking of a mining claim comprising approximately 940 hectares (approximately 4 square miles) at Cree Lake in the Athabasca Basin of Saskatchewan.
In October 2004, the Company signed an option to purchase an additional mining claim at Cree Lake which covers 1681 hectares (approximately 6.5 square miles) and is located immediately adjacent to, and southwest of, the first Cree Lake claim. This option agreement is referred to herein as the Diabase Peninsula Lease.
Terms of the Diabase Peninsula Lease require Trend to maintain the claim group in good standing by performing a minimum of approximately CDN $20,172 worth of field work per year. In addition, payments to the lessor of CDN $15,000, $20,000, and $30,000, respectively, were made in each of the first three years. Trend has an option to purchase the claims for CDN $11 million any time through September 2012, at which time the property remains subject to a 3% gross royalty on any and all minerals produced.
Subsequent to the acquisition of the Diabase Peninsula Lease, Trend staked one more claim on the southwestern edge of the lease for an additional 1603 hectares (6.2 square miles), such that the aggregate area of Trend’s uranium claims in the Athabasca Basin totals 4224 hectares (16.7 square miles).
In December 2004, Trend announced that it and Nuinsco Resources Limited (“Nuinsco”) signed a Letter of Intent to form a 50-50 joint venture to own, operate and explore the three Cree Lake/Diabase Peninsula claims. Pursuant to the Letter of Intent Nuinsco conducted, at its expense, an exploration program consisting of geophysical surveys and geochemical sampling followed by drilling. A definitive joint venture agreement was executed on September 29, 2005. Under the terms of the joint venture agreement, Nuinsco must maintain all three claims in good standing, including the performance of the minimum annual filed work required by the Diabase Peninsula Lease, and will earn a 50% interest in the claims upon spending CDN $1 million prior to December of 2007. The spending requirement was satisfied in May of 2006, and accordingly, Trend and Nuinsco became 50-50 owners of the claims at that time. Since then, Trend has declined to fund its 50% share of continuing exploration expenditures and as a result, the Company’s ownership had been diluted to approximately 30% as of September 30, 2006. In the future, if Nuinsco takes the project into the development stage, Trend will have a one time opportunity to regain its 50% interest by repaying the expenditures it otherwise would have made plus paying a 40% penalty.
Additionally, to offset Trend’s payments made to the lessor, and per terms of the agreement with Nuinsco, during the quarter ended June 30, 2006, Nuinsco granted to the Company 212,500 freely trading shares of Nuinsco common stock.
Stillwater Complex, Montana
Effective January 1, 2005, Trend entered into an agreement with Aurora Metals Limited (“Aurora”) that provides that Trend will explore for platinum group and base metals on portions of Aurora claims known as the “Stillwater Intrusive Complex” in Montana. Trend will be the operator during the exploration stage and will earn 50% in the project by fulfilling work commitments to spend $2 million on qualified exploration expenditures over the ensuing 5 years. Additionally, Trend issued 50,000 shares of its common stock to Aurora on commencement of the agreement. Further, Trend issued 20,000 shares and paid $20,000 on the first anniversary of the agreement and must pay $20,000 in cash or stock each year thereafter until it has spent the agreed upon sum of $2 million, at which time a 50-50 joint venture will be formed.
The cumulative work commitment required by the agreement is $500,000 during the first two year period ending December 31, 2006. Thereafter, work commitments total $500,000 per year for three additional years. Through December 31, 2006, the Company had spent approximately $400,472 on qualified exploration expenditures. The Company was unable to complete its work commitment for 2006 due to forest fires which closed the National Forest. The Company notified Aurora of a Force Majeure situation and will need to spend, subject to final accounting, approximately $630,000 during 2007 to maintain the agreement in force.
TREND MINING COMPANY
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
Lake Owen Claims, Wyoming
In September 1999, the Company entered into an agreement with General Minerals Corporation (“GMC”) to acquire a platinum group metals and magnetite property located in Albany County, Wyoming. Pursuant to the agreement, the Company received 104 unpatented mining claims, the Lake Owen claims, in exchange for 715,996 shares of common stock, $40,000 in cash and $750,000 in exploration expenditure commitments to be incurred over a three-year option period. In May 2000, the Company issued an additional 129,938 shares of common stock under this agreement.
In June 2000, the Company and GMC entered into an amendment to the agreement under which (i) the Company issued 416,961 shares of common stock to GMC upon GMC’s exercise of preemptive rights, (ii) the Company performed an additional $15,000 of geophysical work prior to December 31, 2000 (subsequently modified), (iii) the Company issued 200,000 additional shares and warrants exercisable until June 2002 to purchase 200,000 shares at $0.70 per share, and (iv) GMC agreed to terminate its antidilution and preemptive rights as provided in the original agreement. The 200,000 warrants expired.
In March 2002, the Company issued 1,100,000 shares, valued at $770,000 in full satisfaction of cash commitments relating to exploration activities. The issuance of these shares resulted in the full ownership of the Lake Owen claims by Trend Mining Company.
In 1999-2000, the Company staked additional claims at Lake Owen and an adjoining area, Albany West, and now holds 601 unpatented mining claims at the Lake Owen area.
In August, 2005, the Company commenced exploration of this property with ground magnetic surveys. Effective June 1, 2006, the Company leased the 601 claims to RMP Resources Corp., a private company. The lease requires RMP to pay Trend advance royalties of $35,000 annually. The lease also requires RMP to incur exploration expenditures of $200,000 through June 1, 2007, $350,000 during the following year, and $500,000 annually thereafter. Upon the cumulative expenditure of $5 million, RMP will acquire the property and will owe a 3% net smelter returns royalty to Trend.
Peter Lake, Saskatchewan, Canada
The Company holds mining claims in the Peter Lake Domain of northern Saskatchewan. The Peter Lake Domain is recognized to host known occurrences of copper-nickel and platinum-palladium mineralization.
In August 2000, the Company staked five claims. In 2002, the Company allowed these claims to lapse and subsequently restaked them plus one additional claim. In October of 2004 the Company expanded the Peter Lake Project by acquiring 3 claims near Ant Lake, Swan Lake, and Seahorse Lake. Five of the six 2002 claims lapsed, but in 2005 the Company staked four new claims. In March of 2006, the Company allowed the remaining 2002 claim to lapse, such that now the Company holds seven claims for a total of 14,781 hectares (57 square miles).
In August 2004, the Company began exploration of this property. During the summer of 2005, the Company executed a broad reconnaissance program to search for extractable concentrations of minerals.
The Company continues to hold the property and will be required to spend approximately CDN$177,000 in 2007 to retain these claims. The Company is seeking a joint venture partner due to the high expense of operating in the high Canadian latitudes.
Pyramid Claims, Nevada
The Company retains a 1.5% net smelter returns royalty interest in the Pyramid project, which consists of five unpatented lode mining claims within the Walker Indian Reservation near Fallon, Nevada. The claims are owned by Consolidated Goldfields Corporation which has offices in Reno, Nevada and is conducting underground and surface sampling at the project as of the date of this report..
TREND MINING COMPANY
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
Rae-Wallace Claims
The Company retains a 2.5% net smelter returns royalty on four patented mining claims located north of Anchorage, Alaska, that are owned by the Rae-Wallace Company, a former subsidiary. Trend does not anticipate any activity being conducted on these claims in the foreseeable future.
NOTE 4 - CONVERTIBLE DEBT
The Company’s convertible debt at March 31, 207 and September 30, 2006 consists of the following:
| | | March 31, 2007 | | September 30, 2006 | |
2001/2002 Convertible Debt: Notes payable, interest at 8% payable monthly, due August 17, 2008 | | $ | 940,638 | | $ | 940,638 | |
| | | | | | | | |
2005 Convertible Debt: Notes payable at prime plus 3% (11.25% at September 30, 2006) but not less than 10%, due January 28, 2008, principal and interest payable monthly | | | 754,184 | | | 885,490 | |
| | | | | | | | |
2006 Convertible Debt: Notes payable, interest at 10%, due June 13, 2009, principal and interest payable monthly beginning October 2006 | | | 880,469 | | | 1,025,000 | |
| | | | | | | | |
| Subtotal | | | 2,575,291 | | | 2,851,128 | |
| | | | | | | | |
| Unamortized discounts | | | (707,905 | ) | | (1,138,662 | ) |
| | | | | | | | |
| Total | | | 1,867,386 | | | 1,712,466 | |
| | | | | | | | |
| Less current maturities | | | (570,116 | ) | | (215,259 | ) |
| | | | | | | | |
| Convertible debt, net of current portion | | $ | 1,297,270 | | $ | 1,497,207 | |
Additional information regarding the Company’s convertible debt is as follows:
2001/2002 Convertible Debt
During the years ended September 30, 2001 and 2002, the Company completed private placements of convertible promissory notes in the amount of $1,032,857. The Company also issued warrants with the promissory notes. Subsequently, certain terms of both the notes and the warrants were modified. The warrants, as modified, allow for the purchase of up to 7,063,174 shares of the Company’s common stock. See Note 5 for additional information regarding warrants.
The promissory notes, as modified, are convertible into Units at a rate of one Unit for each $0.21 of principal outstanding. Each Unit consists of one share and one warrant with the warrant being exercisable for a period of five years from the date of conversion at a price of $0.25 per share.
2005 Convertible Debt
During the year ended September 30, 2005, the Company completed private placements of convertible promissory notes in the amount of $1,800,000. Required monthly payments of principal and interest may be made in cash or in shares of the Company’s common stock. On December 6, 2005, the conversion rate of the debt was changed by operation of a clause in the note agreements that automatically reduced the conversion rate upon the sale by the Company of common stock at a price lower than the existing conversion rate of the notes. Therefore, at any time prior to maturity, the promissory notes are convertible into shares of the Company’s common stock at a rate of one share for each $0.10 of principal and interest outstanding. Additionally, the Company issued two series of warrants (Class A and Class B) with the promissory notes. The Class A warrants allow for the purchase of up to 2,400,000 shares of the Company’s common stock and Class B warrants allowed for the purchase of up to 3,000,000 shares of common stock.
TREND MINING COMPANY
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
In relation to the convertible debt, the Company paid finders fees in the form of approximately $214,000 in cash and the issuance of Class A and Class B warrants. The Class A warrants allow for the purchase of up to 825,001 shares of the Company’s common stock and Class B warrants allowed for the purchase of up to 825,001 shares of common stock.
At issuance, the value of all the warrants and the beneficial conversions rights was $1,089,596 which was recorded on the balance sheet as a debt discount and additional paid-in capital. The warrants, beneficial conversion rights and finders fees are being amortized over the 3 year term of the convertible debt and the amortized amounts are included in financing expense in the financial statements.
During the year ended September 30, 2006, the exercise price of the Class A warrants was modified and all of the Class B warrants expired. See Note 5 for additional information regarding warrants.
2006 Convertible Debt
During the year ended September 30, 2006, the Company completed private placements of convertible promissory notes in the amount of $1,025,000. Required monthly payments of principal and interest may be made in cash or in shares of the Company’s common stock. At any time prior to maturity, the promissory notes are convertible into shares of the Company’s common stock at a rate of one share for each $0.10 of principal and interest outstanding. Additionally, the Company issued two series of warrants (Class A and Class B) with the promissory notes. The Class A warrants allow for the purchase of up to 4,100,000 shares of the Company’s common stock and Class B warrants allow for the purchase of up to 5,125,000 shares of common stock. See Note 5 for additional information regarding warrants.
In relation to the convertible debt, three shareholders were paid commissions totaling $133,500. The commissions were paid in the form of $23,750 in cash, issuance of 375,000 common shares valued at $37,500, and a $72,000 reduction of the balance of a promissory note.
At issuance, the value of all the warrants and the beneficial conversions rights was $891,750 which was recorded on the balance sheet as a debt discount and additional paid-in capital. The warrants, beneficial conversion rights and commissions are being amortized over the 3 year term of the convertible debt and the amortized amounts are included in financing expense in the financial statements.
NOTE 5 - WARRANTS AND OPTIONS
The Company has issued warrants that enable the holder to purchase a stated number of shares of common stock at a certain price within a certain time period. Warrants have been issued in connection with a 1999 stock purchase agreement and in connection with the convertible debt discussed in Note 4.
Following is a summary of warrants outstanding at March 31, 2007:
Number of Warrants | | Strike Price | | Expiration Date |
| 2,383,333 | | $ 0.10 | | 1/27/2010 |
| 200,000 | | $ 0.10 | | 3/22/2010 |
| 641,668 | | $ 0.10 | | 7/28/2010 |
| 4,100,000 | | $ 0.17 | | 6/13/2011 |
| 6,464,761 | | $ 0.25 | | 9/30/2011 |
| 150,000 | | $ 0.25 | | 1/31/2012 |
| 113,413 | | $ 0.25 | | 6/27/2012 |
| 335,000 | | $ 0.25 | | 9/30/2012 |
| 5,125,000 | | $ 0.25 | | * |
| 19,513,175 | | | | |
TREND MINING COMPANY
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
* expire 120 days after the effective date of a registration statement registering the shares issuable upon exercise of the warrants. The Company anticipates that a registration statement will be filed during the first quarter of calendar year 2007.
On February 23, 2001, the Company’s shareholders approved the adoption of the 2000 Equity Incentive Plan and the reservation of 5,000,000 shares of common stock for distribution under the plan. On April 19, 2006, the plan was amended to increase the number of reserved shares to 8,000,000. These shares and options to acquire those shares may be granted to the Company’s employees, directors and consultants. Under the plan, through December 31, 2006, 1,800,000 shares have been granted as directors fees. In addition, various options have been granted to officers, directors and consultants.
Following is a summary of stock option activity under the 2000 Equity Incentive Plan for the three months ended March 31, 2007:
| | | Number of Shares | | Weighted Average Exercise Price | |
| | | | | | |
| Outstanding at September 30, 2006 | | | 2,125,000 | | $ | 0.33 | |
| Granted | | | — | | | — | |
| Exercised | | | — | | | — | |
| Forfeited | | | (150,000) | | | 0.30 | |
| Outstanding at March 31, 2007 | | | 1,975,000 | | $ | 0.33 | |
| Exercisable at March 31, 2007 | | | 1,975,000 | | $ | 0.33 | |
NOTE 6 - RELATED PARTY TRANSACTIONS
On behalf of the Company, in March 2005, an officer personally paid $15,000 owed to an outside consultant. The Company has recorded that amount in “accounts payable, related parties”, in the financial statements.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Mineral Properties
Four of the Company’s mining claims at Peter Lake in Saskatchewan, Canada, are scheduled to lapse in August 2007, and the remaining three claims in January 2008. In order to retain the claims, the Company must fulfill exploration commitments prior to the lapse dates of CDN$119,000 and CDN$58,000 for the four claims and three claims, respectively.
To maintain its interest in the Stillwater property, the Company must fulfill exploration commitments of approximately $624,000 by December 31, 2007 and $500,000 in each of the following two years.
All commitments to maintain the Company’s Cree Lake claims are being fulfilled by the Company’s joint venture partner. All commitments to maintain the Company’s the Lake Owen claims are being fulfilled by the lessee of the claims.
The Company’s interest in the Andacollo mine, Pyramid claims, and Rae-Wallace claims are all perpetual royalties requiring no future commitments.
TREND MINING COMPANY
(AN EXPLORATION STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
Employment Agreements
The Company has an employment agreement with Mr. John Ryan, the chief financial officer, secretary and treasurer, whereby Mr. Ryan receives a salary of $4,000 per month. The agreement may be terminated by either party with 30 days notice. If the Company is unable to pay the salary in cash, then Mr. Ryan has the option to receive $4,000 worth of the Company’s common stock at the prevailing rate of which shares are or were most recently sold by the Company.
Legal Proceedings
In May, 2002, one of the Company’s vendors obtained a judgment to collect $18,574 due under a rental lease agreement for office space the Company chose to vacate. The judgment bears interest at 18% until paid in full. Included in the accounts payable balance as of March 31, 2007 is approximately $41,300 related to this judgment.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Cautionary Statement for Purposes of the “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995. This section contains forward looking statements. Forward looking statements are only expressions of Trend’s present expectations and intentions. Forward looking statements are not guaranteed to occur and they may not occur. You should not place undue reliance upon forward looking statements. You should read these cautionary statements as being applicable to all forward looking statements wherever they appear. Trend assumes no obligation to update the forward looking statements or the reasons why actual results could differ from those projected in the forward looking statements to reflect events or circumstances after the date hereof.
OVERVIEW
Trend is a diversified minerals company engaged in exploration for base and precious metals. Trend’s properties include its royalty interest in the producing Andacollo gold mine in Chile, the advanced stage Mouat nickel-copper deposit in Montana, and a portfolio of uranium, PGM, and base metal exploration projects in the United States and Canada. As an exploration company, Trend’s major expenditures consist of payment of governmental fees to maintain the priority of Trend’s unpatented mining claims, payment of Trend’s debt service, payment of accounting and legal fees, and general office expenses, the aggregate of which typically outweigh monies spent on exploration programs. Until the Company or one of its partners advances one of Trend’s interests to the point where it generates substantial revenues, Trend will continue to need to raise funds in the financial markets to fund its ongoing exploration efforts. To that end, Trend’s principal vehicles for attracting new equity capital are its advanced stage nickel-copper deposit at Stillwater, Montana - where Trend is the operator, and its stake in an unconformity-type uranium play in the Athabasca Basin of Saskatchewan, where recent exploration results have been fairly positive and Trend’s operating partner has announced a major drilling program for 2007.
Our principal mineral property interests are set forth below:
Property | | Commodity | | Status | | TRDM interest |
| | | | | | | |
Andacollo, Chile | | Gold | | Producing | | 1% NSR royalty |
| | | | | | | |
Stillwater, Montana | | Ni, Cu, PGMs | | Advanced exploration | | Option to own 50% |
| | | | | | | |
Diabase Peninsula, Saskatchewan | | Uranium | | Exploration | | Variable right to own up to 50% |
| | | | | | | |
Lake Owen, Wyoming | | PGMs, Fe, Ti, V | | Exploration | | 100% but leased to RMP Resources |
| | | | | | | |
Peter Lake, Saskatchewan | | PGMs, Cu, Au | | Exploration | | 100% |
Trend has been notified by the owners of the Andacolla Gold Mine Project located in Chile that they were challenging the rights of Trend to continue to receive royalties. The owners ceased paying the royalties and informed Trend that they do not intend to pay further royalties. Trend intends to vigorously contest the position taken by the owners and is considering all its options in defending its contractual rights to receive royalties. Trend did not receive any royalties during the quarter ended March 31, 2007, and pending resolution of the dispute, has not accrued a receivable for any such royalties.
RESULTS OF OPERATIONS
Comparison of three months ended March 31, 2007 to three months ended March 31, 2006
We recorded a comprehensive loss of $255,142, or $.00 per share, on revenues of $0 in the three months ended March 31, 2007. This compares to a net loss of $499,284, or $0.01 per share in the same period of 2006 when there also were no revenues.
Our 1% Net Smelter Returns royalty interest in the Andacollo gold mine in Chile commenced paying revenues during the third quarter of FY 2006. The Company did not receive any royalties during the quarter ended March 31, 2007, and cannot anticipate receiving any future royalties until our dispute with the mine owners is resolved.
Exploration expenses were $6,412 in the three months ended March 31, 2007 as compared to $30,640 in 2006. Activity in 2007 related to consultants working on the evaluation of Stillwater data, whereas during the same period in 2006, activity was higher due to a high tempo of field activity in the previous quarter ended September 30, 2006 and which encompassed the exploratory drilling program at Stillwater.
General and Administrative expenses were $46,077 in 2007 as compared to $70,842 in 2006 and were higher in 2007 due to taxes paid on the Andacollo royalty as well as to advisory fees paid to the CPM Group.
Officers and directors compensation was $23,250 for the quarter ended March 31, 2007 as compared to $44,500 in the same period of 2006. The lower 2007 amount was primarily due to the January 31, 2007 resignation of Thomas Loucks, our then President and CEO.
Legal and professional fees were $46,968 in 2007 compared to $153,235 in 2006. This decrease was because of less activity regarding the filing of registration statements and property acquisition activity.
Dividend and interest income of $2,036 was slightly lower due to lower money market interest earned in 2007 on lower cash balances as compared to 2006.
Financing expense is a non-cash item for the amortization of discounts related to our convertible debt. The discounts relate to beneficial conversion rights, warrants, and other financing costs. Interest expense charges of $60,512 in 2007 compared to $79,237 in 2006 were slightly lower due to a reduction in the overall corporate debt
The net loss of $300,139 in the quarter ended March 31, 2007 is compared to the net loss of $499,284 in the same period of 2006. The decrease was primarily due to the reduced expenses discussed above. Trend recognized an unrealized gain on available for sale securities of $44,997 in the quarter ended March 31, 2007. This unrealized gain represents market appreciation during the quarter on Trend’s investment in two Canadian entities, Nuinsco Resources Limited and Victory Nickel Inc.
Comparison of six months ended March 31, 2007 to six months ended March 31, 2006
We recorded a comprehensive loss of $757,659, or $.01 per share, on revenues of $91,268 in the six months ended March 31, 2007. This compares to a net loss of $988,188, or $0.03 per share in the same period of 2006 when there were no revenues.
Our 1% Net Smelter Returns royalty interest in the Andacollo gold mine in Chile commenced paying revenues during the third quarter of FY 2006. The Company did not receive any royalties during the quarter ended March 31, 2007, and cannot anticipate receiving any future royalties until our dispute with the mine owners is resolved.
Exploration expenses were $41,927 in the six months ended March 31, 2007 as compared to $37,692 in the same period in 2006. General and Administrative expenses were $159,045 in the six months ended 2007 as compared to $130,301 in 2006. The increase in general and administrative expenses in 2007 was due to taxes paid on the Andacollo royalty as well as to advisory fees paid to the CPM Group.
Officers and directors compensation was $185,438 for the six months ended March 31, 2006 as compared to $81,303 in the same period of 2007. The lower 2007 amount was primarily due to the January 31, 2007 resignation of Thomas Loucks, our then President and CEO.
Legal and professional fees were $139,453 for the six months ended March 31, 2007 compared to $320,725 for the six months ended March 31, 2006. This decrease was because of less activity in 2007 regarding the filing of registration statements and property acquisition activity.
Dividend and interest income of $6,266 was slightly lower due to lower money market interest earned in 2007 on lower cash balances as compared to 2006.
Financing expense is a non-cash item for the amortization of discounts related to our convertible debt. The discounts relate to beneficial conversion rights, warrants, and other financing costs. These expenses were $430,756 in 2007 as compared to $231,975 in 2006, the difference related to the effects of resetting the strike prices on various warrant instruments as the Company conducted financings at lower prices. Interest expense charges of $123,133 in the six months period of 2007 compared to $145,401 in the same period of 2006 were slightly lower due to a reduction in the overall corporate debt.
Trend recognized an unrealized gain on available for sale securities of $118,309 during the six months ended March 31, 2007. This unrealized gain represents market appreciation during the quarter on Trend’s investment in two Canadian entities, Nuinsco Resources Limited and Victory Nickel Inc.
LIQUIDITY & CAPITAL RESOURCES
Liquidity:
We currently have no source of cash receipts due to the dispute regarding our Andacollo royalty that was discussed above. Should that dispute be resolved in our favor, we would expect cash receipts of approximately $20,000 per month net of tax from the Andacollo gold mine royalty. This income is insufficient to fund our General and Administrative expenses which total about $50,000 per month. We are presently evaluating the potential cost of defending our contractual rights to receive the Andacollo royalties. We will need to raise capital in the financial markets to fund our ongoing exploration activities and conduct ongoing operations.
We are continually evaluating business opportunities such as joint ventures, mergers, acquisitions, and strategic alliances with the objective of creating additional cash flow to sustain the corporation and provide a future source of funds for growth. Although we believe that we will find financing for our continuing activities, we cannot assure you of success in this regard. If we are not successful in raising additional capital, operations and liquidity will be adversely impacted.
During the six months ended March 31, 2007, debenture holders converted $275,836 of principal amounts to shares as compared to $54,010 of conversion in the same period of 2006.
Summary of Cash Flows for Six Months ended March 31, 2007:
The Company’s cash and cash equivalents declined by an amount of $296,300during the six months ended March 31, 2007.
Operating Activities:
Operations used $296,300 of cash during the six months ended March 31, 2007 as compared to $253,481 provided by operations in 2006. Cash was provided by operations in 2006 primarily as a result of the sale of Andacollo Gold Mine property with the retained royalty discussed above.
Investing Activities:
During the six months ended March 31, 2007 and 2006, there were no significant cash flows from Investing activities.
Financing Activities:
During the six months ended March 31, 2007 there were no cash flows from Financing Activities, as compared to the six months ended March 31, 2006 in which 1.5 million shares of common stock were issued in a private placement for $150,000 and payments of $360,000 were made on notes payable.
Outlook:
Operations
Due to the dispute regarding our Andacollo royalty, we cannot predict the amount of royalty payments that we may receive in the future. We will need to spend $630,000 by the end of the fiscal year to maintain our rights at Stillwater, Montana, and will spend an estimated $450,000 for general and administrative expenses through the period ended September 30, 2007.
Investing
At present, we have no plans to engage in any investing activities during fiscal 2007.
Financing
During the next 12 months approximately $1,091,000 of principal will be due on our long-term convertible debt. We believe that all of the principal repayment and most of the related interest obligation will be paid by the issuance of common stock.
At March 31, 2007, we had outstanding warrants to purchase 19,513,174 shares of common stock that, if exercised, would result in aggregate proceeds of approximately $4,067,000. Also, there are outstanding options to purchase 1,975,000 shares of common stock that, if exercised, would result in aggregate proceeds of approximately $657,000. However, as of March 31, 2007, none of the outstanding warrants or options was in-the-money. No assurance can be made that any or all of the warrants or options will ever be exercised. We will need to raise additional capital in the financial markets to fund our ongoing exploration activities and conduct ongoing operations.
The balance of convertible debt owed by Trend at March 31, 2007, is as follows:
| | | Principal Amounts | | Maturity Date | | Interest Rate | |
| | | $ | 940,638 | | | August 2008 | | | 8% | |
| | | $ | 754,184 | | | January 2008 | | | Prime plus 3% | |
| | | $ | 880,469 | | | June 2009 | | | 10% | |
| Total | | $ | 2,575,291 | | | | | | | |
ITEM 3. CONTROLS AND PROCEDURES.
(a) Evaluation of disclosure controls and procedures.
Within the 90 days prior to the filing of this Quarterly Report on Form 10-QSB (the “Evaluation Date”), the Company carried out an evaluation, under the supervision and with the participation of its management, including its Interim Chief Executive Officer and its Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Exchange Act). Based upon that evaluation, the Company’s Chief Executive Officer and its Chief Financial Officer concluded that the Company’s disclosure controls and procedures are not effective to ensure that material information required to be disclosed by it in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms.
It should be noted, that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
(b) Changes in internal controls.
There was no change in our internal controls over financial reporting during the quarter ended March 31, 2007 that materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting. However, our chief executive officer and only full-time employee, Thomas Loucks, resigned during the quarter ended March 31, 2007.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
As part of the consideration for the sale by Trend of equity interest in DMC Cayman, Inc. ("DMC Cayman") to Oro Chile, LLC, a Colorado limited liability company ("Oro Chile") and David H. Russell, Susan T. Russell and David H. Russell III (collectively the "Russell Interests") dated December 2, 2005, each of Oro Chile and the Russell Interests agreed to pay to Trend a net smelter returns royalty (the "Royalty") on the production from the Andacollo Mine located in Chile (the "Mine"). The Mine is indirectly owned by DMC Cayman. Oro Chile and the Russell Interests paid the Royalty to Trend from the start of production of the Mine through December 31, 2007; however, Oro Chile and the Russell Interests have ceased paying the Royalty, and informed Trend that they have no current intention of making any further payments under the Royalty. Trend is exploring what legal remedies it has against Oro Chile and the Russell Interests based on this action.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
During the quarter ended March 31, 2007, we issued an aggregate of 628,089 shares of common stock to accredited investors as payment of interest and principal on promissory notes outstanding. We relied on the exemption from registration found in Section 4(2) of the Securities Act in connection with this issuance.
All shares issued in connection with the above described events were issued to existing stockholders or individuals or entities previously known to us. At the time of each issuance, Trend was not aware of any such investor having any current intent to resell Trend’s stock.
ITEM 5. OTHER INFORMATION.
As part of the consideration for the sale by Trend of equity interest in DMC Cayman to Oro Chile and the Russell Interests dated December 2, 2005, each of Oro Chile and the Russell Interests agreed to pay to Trend the Royalty on the production from the Mine. The Mine is indirectly owned by DMC Cayman. Oro Chile and the Russell Interests paid the Royalty to Trend from the start of production of the Mine through December 31, 2007; however, Oro Chile and the Russell Interests have ceased paying the Royalty, and informed Trend that they have no current intention of making any further payments under the Royalty. Trend is exploring what legal remedies it has against Oro Chile and the Russell Interests based on this action.
ITEM 6. EXHIBITS.
Exhibit | | Description |
| | | |
| 31.1 | | Certification Required Under Section 302 of Sarbanes-Oxley Act of 2002 |
| | | |
| 31.2 | | Certification Required Under Section 302 of Sarbanes-Oxley Act of 2002 |
| | | |
| 32.1 | | Certification Required Under Section 906 of Sarbanes-Oxley Act of 2002 |
| | | |
| 32.2 | | Certification Required Under Section 906 of Sarbanes-Oxley Act of 2002 |
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
TREND MINING COMPANY
Date: June 6, 2007
By: /s/ Ishiung Wu
Ishiung Wu
Interim President and Chief Executive Officer
(Principal Executive Officer)
By: /s/John P. Ryan
John P. Ryan
Treasurer and Chief Financial Officer
(Principal Financial Officer)
