U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the Quarter Ended September 30, 1998 Commission File No. 0-9416
WCM CAPITAL, INC.
(FORMERLY FRANKLIN CONSOLIDATED MINING CO., INC.)
(Exact name of registrant as specified in its charter)
Delaware #13-2879202
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
76 Beaver Street, Suite 500, New York, New York 10005
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area code (212) 344-2828
The Number of Shares Outstanding of Common Stock
$.01 Par Value, at September 30, 1998 3,955,173
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports,) and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X_ No ___
WCM CAPITAL, INC.
(Formerly FRANKLIN CONSOLIDATED MINING CO., INC.)
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEETS
(Unaudited)
ASSETS
September 30, December 31,
1998 1997
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $ -- $ 1,078
------------ ------------
TOTAL CURRENT ASSETS -- 1,078
Note receivable, Com Inc. 365,653 --
Mining, milling and other property and equipment,
net of accumulated depreciation and depletion of
$2,094,436 and $1,959,160 4,674,659 5,424,935
Land - held for resale 345,000 345,000
Mining reclamation bonds 133,622 130,681
------------ ------------
$ 5,518,934 $ 5,901,694
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 569,091 $ 367,933
Payroll and other taxes payable 29,960 31,181
Convertible debentures 145,000 145,000
Notes payable - related party and others 250,000 167,000
Note payable - related party 1,115,364 955,756
------------ ------------
TOTAL CURRENT LIABILITIES 2,109,415 1,666,870
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, par value $.01 per share;
100,000,000 shares authorized; 3,955,173 shares
issued and outstanding 39,552 39,552
Additional paid-in capital 17,299,816 17,299,816
Deficit accumulated during the development stage (13,929,849) (13,104,544)
------------ ------------
3,409,519 4,234,824
------------ ------------
($ 5,518,934) $ 5,901,694
============ ============
See notes to condensed financial statements.
2
WCM CAPITAL, INC.
(Formerly FRANKLIN CONSOLIDATED MINING CO., INC.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION)
TO SEPTEMBER 30, 1998
(Unaudited)
Nine Months Three Months
Ended September 30, Ended September 30, Cumulative
---------------------------- ---------------------------- from
1998 1997 1998 1997 Inception
------------ ------------ ------------ ------------ ------------
REVENUES:
Sales $ -- $ -- $ -- $ -- $ 876,082
Interest income 18,593 2,855 13,230 903 563,368
Other income -- -- -- -- 75,000
------------ ------------ ------------ ------------ ------------
18,593 2,855 13,230 903 1,514,450
------------ ------------ ------------ ------------ ------------
EXPENSES:
Mine expenses and environmental
remediation costs 52,796 -- 14,305 -- 3,576,534
Loss/write-down of mining and milling and
other property and equipment 265,000 -- -- -- 1,465,000
Depreciation and depletion 135,276 90,000 71,769 30,000 2,289,785
General and administrative expenses 301,322 419,033 86,102 174,005 5,700,107
Interest expense 89,505 63,776 32,108 5,491 718,678
Amortization of debt issuance expense -- -- -- -- 683,047
Equity in net loss and settlement of claims
of Joint Venture -- 11,541 -- 5,000 591,971
Other -- -- -- -- 419,179
------------ ------------ ------------ ------------ ------------
843,899 584,350 204,284 214,496 15,444,301
------------ ------------ ------------ ------------ ------------
NET LOSS $ (825,306) $ (581,495) $ (191,054) $ (213,593) $(13,929,851)
============ ============ ============ ============ ============
BASIC LOSS PER COMMON SHARE $ (.21) $ (.15) $ (.05) $ (.05)
============ ============ ============ ============
WEIGHTED AVERAGE SHARES
OUTSTANDING 3,955,173 3,919,598 3,955,173 3,955,173
============ ============ ============ ============
See notes to condensed financial statements.
3
WCM CAPITAL, INC.
(Formerly FRANKLIN CONSOLIDATED MINING CO., INC.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION)
TO SEPTEMBER 30, 1998
(Unaudited)
Cumulative
from
1998 1997 Inception
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (825,305) $ (581,495) $(13,929,851)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and depletion 135,276 90,000 2,289,787
Loss/write-down of mining, milling and other
property and equipment 265,000 -- 1,465,000
Amortization of debt issuance expense -- -- 683,047
Value of common stock issued for:
Services and interest -- -- 1,338,714
Settlement of litigation -- -- 100,000
Settlement of claims by joint venture partner -- -- 468,000
Compensation resulting from stock options granted -- -- 311,900
Value of stock options granted for services -- -- 112,500
Equity in net loss of joint venture -- 11,541 123,971
Other -- -- (7,123)
Changes in operating assets and liabilities:
Prepaid expenses -- 80,985 --
Interest accrued on mining reclamation bonds and notes (18,594) (2,855) (24,275)
Accounts payable and accrued expenses 199,937 (125,955) 831,307
------------ ------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (243,686) (527,779) (6,237,023)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases and additions to mining, milling and other
property and equipment -- -- (5,120,354)
Purchases of mining reclamation bonds, net -- -- (125,000)
Deferred mine development costs and other expenses -- -- (255,319)
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES -- -- (5,500,673)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuances of common stock -- 63,500 8,758,257
Issuance of underwriter's stock warrants -- -- 100
Commissions on sales of common stock -- -- (381,860)
Purchases of treasury stock -- -- (12,500)
Payments of deferred underwriting costs -- -- (63,814)
Proceeds from exercise of stock options -- -- 306,300
Issuance of convertible debentures and notes -- -- 1,505,000
Proceeds of advances from joint venture partner -- 197,766 526,288
Advances to joint venture partner -- 266,438 (181,017)
Payments of debt issuance expenses -- -- (164,233)
Proceeds of other notes and loans payable 242,608 -- 1,557,882
Repayments of other notes and loans payable -- -- (120,000)
Proceeds of loans from affiliate -- -- 55,954
Repayments of loans from affiliate -- -- (48,661)
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 242,608 527,704 11,737,696
------------ ------------ ------------
(Continued) See notes to condensed financial statements.
4
WCM CAPITAL, INC.
(Formerly FRANKLIN CONSOLIDATED MINING CO., INC.)
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION)
TO SEPTEMBER 30, 1998
(Unaudited)
Cumulative
from
1998 1997 Inception
-------- -------- ---------
INCREASE (DECREASE) IN CASH $ (1,078) $ (75) $ --
CASH - beginning of period 1,078 127 --
-------- -------- --------
CASH - end of period $ -- $ 52 $ --
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW DATA:
Interest paid $ 3,889 $ -- $303,758
======== ======== ========
See notes to condensed financial statements.
5
WCM CAPITAL, INC.
(Formerly FRANKLIN CONSOLIDATED MINING CO., INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 1 - UNAUDITED INTERIM FINANCIAL STATEMENTS
On October 13, 1998, the Company held its Annual Meeting of shareholders at
which time the shareholders approve an amendment to its certificates of
Incorporation changing the name of the Company to WCM Capital Corp. The
name change was effective October 16, 1998.
In the opinion of management, the accompanying unaudited condensed
financial statements reflect all adjustments, consisting of normal
recurring accruals, necessary to present fairly the financial position of
Franklin Consolidated Mining Co., Inc. (the "Company") as of September 30,
1998, its results of operations for the nine and three months ended
September 30, 1998 and 1997 and cash flows for the nine months ended
September 30, 1998 and 1997. Information included in the condensed balance
sheet as of December 31, 1997 has been derived from the audited balance
sheet in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1997 (the "10-KSB") filed with the Securities and Exchange
Commission. Certain terms used herein are defined in the 10-KSB.
Accordingly, these unaudited condensed financial statements should be read
in conjunction with the financial statements, notes to financial statements
and the other information in the 10-KSB.
The results of operations for the nine and three months ended September 30,
1998 are not necessarily indicative of the results of operations for the
full year ending December 31, 1998.
Prior years financial statements have been reclassified to conform with the
current year presentation.
NOTE 2 - BASIS OF PRESENTATION
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. However, the Company has had
recurring losses and cash flow deficiencies since inception. As at
September 30, 1998, the Company has an accumulated deficit of $13,929,849,
current liabilities of $2,109,415, and a working capital deficiency of
$2,109,415. Also, the Company was in default on the payment of the
principal balance and accrued interest on certain notes and debentures.
Certain accounts payable also were past due. In addition to the payment of
its current liabilities, management estimates that the Company will incur
general, administrative, and other costs and expenditures, exclusive of any
costs and expenditures related to any mining and milling operations, at the
rate of approximately $20,000 per month plus interest during 1998. Such
matters raise substantial doubt about the Company's ability to continue as
a going concern. The financial statements do not include any adjustments
that may result from the outcome of the above uncertainty.
U.S. Mining Co. ("USM") and its affiliates have pledged to provide
financing to the Company on an as needed basis until on or about January 1,
1999. The funds received from USM and its affiliates will cover the
general, administrative and other costs approximated at $20,000 per month
plus interest. Additional funds will be needed to ready the Franklin Mining
properties for commencement of operations and to support the extraction and
milling processes once underway as well as to upgrade the processing
facilities to allow for an increase in ore processing capacity.
There can be no assurance that the Company will have adequate funds
available to repay the funds advanced by USM and its affiliates. In the
event that the Company defaults on its obligations, USM may foreclose on
the assets secured by the POS Note (as hereafter defined). Such foreclosure
actions by USM would have a material adverse effect on the future
operations of the Company and the Company's ability to explore the Franklin
Mines.
Substantially all of the $4,674,659 of mineral properties and equipment
included in the accompanying balance sheet as of September 30, 1998, is
related to exploration properties. The ultimate realization of the
Company's investment in exploration properties and equipment is dependent
upon the success of future property sales, the existence of economically
recoverable reserves, the ability of the Company to obtain financing or
make other arrangements for development, and upon future profitable
production.
6
WCM CAPITAL, INC.
(Formerly FRANKLIN CONSOLIDATED MINING CO., INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 3 - NOTES PAYABLE RELATED PARTY AND OTHERS
Notes payable related party and others consist of the following at
September 30, 1998:
12% unsecured demand note due to the Company's past President $103,000
Secured promissory note (a) 60,000
Unsecured promissory notes (b) 87,000
--------
$250,000
(a) The outstanding principal balance of the note became payable on July
18, 1996 and the Company is in default. The note is guaranteed by
certain officers of Gems and is collateralized through a subordinated
security interest in the Company's mining reclamation bond. Interest
on the note is payable based on the rate of interest applicable to the
mining reclamation bond.
(b) This principal amount represents four unsecured promissory notes
comprised of one $36,000 note and three $17,000 notes payable. These
obligations were assumed by the Company on November 25, 1997, as part
of the acquisition from USM of the remaining interest in the Joint
Venture. These notes were in default when assumed by the Company, and
remain in default as of September 30, 1998. Interest is being accrued
at rates between 8% and 17% per annum.
Accrued interest on the above notes at September 30, 1998 aggregated
approximately $40,000, including $9,533 payable to the Company's
President.
NOTE 4 - CONVERTIBLE DEBENTURES
The Company's convertible debt at September 30, 1998 consist of:
12.25% convertible debenture originally due 12/31/94 $145,000
As of September 30, 1998, the Company was in default with respect to the
payment of the $145,000 principal balance of the debenture and accrued
interest of approximately $62,000. As a result of its default, the Company
may be subject to legal proceedings by the Transfer Agent/Trustee under the
Indenture Agreement or from debenture holders seeking immediate repayment
of principal plus interest and other costs. Management cannot assure that
there will be funds available for the required payments or what the effects
will be of any actions brought by or on behalf of the debenture holders.
NOTE 5 - NOTE PAYABLE - RELATED PARTY
The Company had outstanding a 8% promissory note balance of $1,115,364, at
September 30, 1998, which represents monies advanced to the Company by POS
Financial, Inc. ("POS"), and USM (the "POS Note") and obligations assumed
in connection with the contributions of Joint Venture interests in 1997.
The note was payable on May 4, 1998, and is secured by all the Company's
mining claims and mining properties, as well as its interests in the
Hayden/Kennec Leases. The note is subject to successive 30 day extensions
throughout 1998 upon the mutual agreement of the maker and lender for no
additional consideration. On March 5, 1998, POS assigned this note to USM.
Both POS and USM are considered related parties because they can exert
significant influence over the Company. Accrued interest at September 30,
1998 was approximately $69,000.
7
WCM CAPITAL, INC.
(Formerly FRANKLIN CONSOLIDATED MINING CO., INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 6 - STOCKHOLDERS' EQUITY
On May 26, 1998, the Company effected a twenty-five for one reverse stock
split. The accompanying financial statements give retroactive effect to the
reverse stock split.
NOTE 7 - SALE OF GOLD HILL MILL PROPERTIES
On June 5, 1998, the Company sold its Gold Hill Mill Properties for
property and equipment having a fair market value of $725,000 and a 14%
note receivable of $350,000. The note is payable on demand. The Company
recognized a loss of $265,000 as a result of this transaction.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Lease Agreements
The original Hayden/Kennec Leases provided for payment by the Company of
certain liabilities relating to the leased property and a minimum royalty
payment of $2,000 per month or 5% of the Company's net smelter royalties
realized from production, whichever is greater to Mrs. Hayden and Mrs.
Kennec. The original Hayden/Kennec Leases expired in November 1996, at
which time the Company had the option to purchase the leasehold rights for
a purchase price of $1,250,000 less any royalties previously paid as of the
expiration date. As of November 1996, the Company had paid approximately
$480,000 in royalties.
On November 19, 1996, the Company entered into an amendment to the
Hayden/Kennec Leases with Dorothy Kennec (the "Kennec Amendment"). Pursuant
to the terms of the Kennec Amendment, Kennec agreed to extend the term as
it relates to her portion of the leasehold rights through November 12,
1997. In consideration for such extension, the Company agreed to increase
the royalty payment due to Kennec under the original Hayden/Kennec Leases
from $1,000 to $2,000 per month and to issue to Kennec 104,000 shares of
the common stock of the Company valued at $.125 per share, having an
aggregate value of $13,000. All of the payments made under the Kennec
Amendment plus the value of the shares issued thereunder are to be further
applied against the buy-out price of the property under the original
Hayden/Kennec Leases. The 104,000 shares of common stock were issued on
April 9, 1997.
To further secure the Company and the Joint Venture, Gems entered into an
agreement on December 21, 1995 to purchase Hayden's interest thereto (the
"Hayden Interests") for a purchase price of $75,000. Gems made an initial
payment of $5,000 to Hayden and the remainder of the purchase price was to
be paid on or prior to the expiration date of the Hayden/Kennec Leases.
Gems advised the Company that under Colorado law, if an owner of 50% of
mineral rights desired to exploit those rights, then the remaining 50%
owner could not object to the exploitation of the rights, provided the
non-participating owner received 50% of the net profits generated from such
exploitation. Therefore, Gems informed the Company that it believed that
with the acquisition of the Hayden interest, together with the portion of
the Hayden/Kennec Leases owned by Kennec, the Company and the Joint Venture
would have adequate access to the minerals during the remainder of the term
of the Hayden/Kennec Leases on a continuing basis.
On November 12, 1997, Gems had failed to comply with the terms of the
Hayden/Kennec-Gems Purchase Agreement. On November 13, 1997, Hayden entered
into an agreement to sell the Hayden interests to USM for a purchase price
of $75,000 (the "Hayden-USM Purchase Agreement"). The purchase price is
evidenced by a note, due on February 2, 1998. Payment on the note has been
extended until USM receives a report of clear title. Upon the execution of
the Hayden-USM Purchase Agreement, USM agreed to extend the Hayden/Kennec
Leases upon the same terms and conditions currently in effect through March
13, 1998 (the "Extended Expiration Date"). The Company is currently in
negotiations to extend these interests, however, there can be no assurance
that an extension will be granted or that the Company will not be subject
to litigation with respect to the Hayden Kennec Leases.
8
WCM CAPITAL, INC.
(Formerly FRANKLIN CONSOLIDATED MINING CO., INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 8 - COMMITMENTS AND CONTINGENCIES (Continued)
While the Company has extended the term of the Hayden/Kennec Leases, as
amended through March 13, 1998, in the event that it shall expire or
otherwise terminate, any improvements made on the property become the
property of the lessor without any further compensation to the Company and
the lessor would have to reclaim the property in accordance with the State
of Colorado Division of Minerals and Geology (the "DMG") requirements in
effect at the time of such expiration or termination. Thus, the likelihood
that the Company would recover fixtures and other equipment on the property
may be minimal.
Environmental Matters
On January 31, 1997, the Company received approval from the DMG of its
March 6, 1996 amended application to its permit by obtaining the $252,000
bond required by the DMG from an independent bonding company in exchange
for (i) the deposit by the Company of $125,000 in a trust account
maintained for the benefit of the bonding company, (ii) guarantees from the
Joint Venture partner and certain of its principals and (iii) the posting
of a performance bond from an independent bonding company by one of the
Joint Venture's contractors with respect to the completion of the technical
and remediation work required by the regulatory authorities. As a result,
management believes that substantially all of the necessary environmental
and regulatory approvals have been obtained from DMG.
The amended permit required among other things the submission of a final
design for tailings disposal facilities, the installation of a Surface
Water Control Plan previously approved by the DMG, the filing of an
Environmental Protection Plan, and the completion of certain closure plans.
As of September 30, 1998, the Company has no formal violations against it
with respect to the Franklin Mines and Franklin Mill. However, there can be
no assurance that the Company will be able to adequately comply with the
conditions set forth in its permit approval or that future violations will
not arise and that such violations will not lead to interruptions in
operations at the Franklin Mines or Franklin Mill.
Litigation
The Company is involved in various litigation as explained below:
(a) The Company and others are defendants in the action related to a
dispute over fees for engineering consulting services supplied in the
amount of approximately $268,000. The Court has remanded the case to
arbitration. The defendants plan to vigorously defend their position
asserting that the work was never completed. An accrued liability of
$35,000 which the Company estimates to be its portion of the total
claim has been recorded in the accompanying financial statements.
(b) In September 1997, certain of the Company's 12.25% Convertible
Debenture holders instituted an action against the Company for payment
of approximately $42,500 principal amount of its 12.25% Convertible
Debentures plus accrued and unpaid interest totaling approximately
$13,000 and other costs and expenses related thereto. The Company has
answered the aforesaid complaint.
(c) In May, 1998, a broker/dealer engaged to provide investment banking
services to the Company instituted an action against the Company for,
among other things, breach of contract, fraudulent inducement and
unjust enrichment plaintiff broker/dealer is claiming damages of not
less than $600,000 plus punitive damages, interest, costs and
disbursements. The Company has answered the complaint and has asserted
counterclaims against plaintiff claiming damages of approximately
$6,000,000.
An unfavorable resolution of these matters could result in material
liabilities or charges that have not been reflected in the accompanying
financial statements.
9
WCM CAPITAL, INC.
(Formerly FRANKLIN CONSOLIDATED MINING CO., INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 8 - COMMITMENTS AND CONTINGENCIES (Continued)
On November 10, 1998, the Company received notification from NASDAQ that,
based upon their review of the price data covering the last thirty
consecutive trade dates, the Company's common stock had failed to maintain
a closing bid price of $1.00. In order to remain eligible for continued
listing on the NASDAQ Small Cap Market, the Company must regain compliance
with the minimum bid price requirement within 90 days from the date of the
notification letter; the Company's securities would be subject to
delisting, effective the close of business February 10, 1999. The Company
would be considered to be in compliance with the minimum bid price rule if
at any time prior to February 10, 1999, the shares of common stock of the
Company reported a closing bid price of $1.00 or greater for 10 consecutive
trading days.
Management believes that, given past trends, the Company's Common Stock may
not sustain trading for ten consecutive trading days at minimum bid price
of $1.00 or more prior to February 10, 1999. In that event, the Company's
Common Stock will be delisted and will no longer be traded on the NASDAQ
Small Cap Market. However, Management is hopeful that, in the event of
delisting, the Company's Common Stock will qualify for trading on the
Over-The-Counter/Bulletin Board ("OTC") market and the Company will make
every effort to include its Common Stock on the OTC in the likely event of
a delisting by NASDAQ.
NOTE 9. OTHER INFORMATION
On or about August 3, 1998, the Company entered into agreements with each
of USM (the "USM Agreement") and William Martucci (the "POS Agreement").
Pursuant to the USM Agreement, USM agreed to forgive indebtedness of the
Company, which included the POS Note, release the security interest of USM
in the assets of the Company securing the POS Note and assigning its rights
to the Hayden-USM Purchase Agreement in exchange for 11,197,413 shares or
42.5% of the issued and outstanding shares of the Company. The Hayden-USM
Purchase Agreement is for the purchase by USM of Hayden's 50% interest in
the Hayden-Kennec Leases.
Under the terms of the POS Agreement, Martucci agreed to sell to the
Company 100% of the outstanding shares of POS in exchange for 11,197,413
shares or 42.5% of the issued and outstanding shares of the Company. POS
owns and operates free standing ATM Kiosks located in retail outlets. As a
condition precedent to the consummation of the transactions contemplated by
each of the USM Agreement and the POS Agreement, the Company was required
to obtain stockholder approval in a timely manner of such transactions.
In August, 1998, the Company filed a preliminary proxy statement with the
Securities and Exchange Commission (the "Commission") for its annual
meeting of stockholders, which included proposals to approve each of the
USM Agreement and the POS Agreement. Shortly after the filing of the
preliminary proxy materials, the Commission informed the Company that the
staff of the Commission (the "Staff") would be conducting a full review of
the proxy materials and underlying proposals. The Company informed USM and
Martucci of the Staff's inquiry and was thereafter notified that USM and
Martucci wished to terminate the agreements under the premise that the
Company could not secure stockholder approval of the transactions in a
timely manner.
On September 21, 1998, the Company received a letter from USM concerning
the monies loaned to the Company by USM, which included the monies owed to
USM by the Company pursuant to the terms of the POS Note and an additional
$144,280 loaned to the Company subsequent to the date of the POS Note. The
letter contained a settlement proposal to satisfy all amounts due and owing
to USM. On September 25,. 1998, the Company responded to the USM letter
with a counter proposal and thereafter the parties commenced active
negotiations in an attempt to resolve this matter favorably.
10
WCM CAPITAL, INC.
(Formerly FRANKLIN CONSOLIDATED MINING CO., INC.)
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 9. OTHER INFORMATION (Continued)
At a meeting of the Board of Directors of the Company on October 8, 1998 a
settlement agreement was approved whereby USM would convert the entire
amount of the Company's indebtedness to USM into shares of common stock of
the Company at a conversion price equal to 50% of the closing bid price as
of the close of business October 7, 1998. The price of the Company's common
stock at the close of business on October 7, 1998 was $.66 per share.
Therefore, the conversion rate under the settlement agreement would be one
share of common stock of the Company for each $.33 of indebtedness of the
Company to USM.
It was further agreed that the settlement plan would be implemented in a
two step transaction. Approximately $306,160 of loans would be paid by
converting that portion into 927,757 shares of common stock of the Company
which would have resulted in USM holding approximately 19% of the total
issued and outstanding shares of common stock of the Company. The
conversion of the remaining indebtedness would be predicated upon either
(i) stockholder approval of the issuance of more than 20% of the Company's
common stock in the aggregate to USM at a discount to market price as
required by the rules of corporate governance promulgated by the NASDAQ
Small Cap Market, or (ii) the issuance of a waiver by the NASDAQ Small Cap
Market which would allow the Company to issue the shares without holding a
special meeting of its stockholders, provided that the Company notify the
shareholders 10 days prior to the issuance of the shares to USM. USM also
agreed that it would continue to provide the Company with financing going
forward as further inducement to consummate the settlement agreement set
forth above.
On October 19, 1998, the Company made a formal application to NASDAQ in
accordance with Rule 4310(c)(25)(H)(ii) of the NASDAQ Stock Market for a
waiver of the requirement that the Company call a meeting of its
stockholders to approve the issuance of over 20% in the aggregate of its
stock to USM at a price below market price. The rule allows for a waiver of
this requirement when, among other things, a delay in securing stockholder
approval would seriously jeopardize the financial viability of the Company.
On or about October 24, 1998, the NASDAQ Stock Market contacted the Company
indicated that it was inclined to deny the Company's application unless
additional information was submitted for review. The Company thereafter
withdrew its application and re-opened negotiations with USM. Although the
Board of Directors of the Company has approved the issuance of 927,757
shares of common stock of the Company, such shares have not been issued.
The Company however, continues to be in default of the POS Note and has
not, as of the date hereof, repaid any of the amounts owed to USM. The
Company and USM are continuing negotiations with respect to the outstanding
monies owed to USM and USM is still funding the Company. As the above
transactions have not been consummated, they have not been reflected in the
Company's financial statement.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS
Liquidity and Capital Resources
The Company had no active mining or milling operations during 1998, however,
remediation work was substantially completed at the Franklin Mine and Mill in
preparation for the anticipated commencement of mining operations sometime
during the third quarter of this year.
Management estimates that the Company will incur general, administrative and
other costs and expenditures, exclusive of any costs and expenditures related to
any mining and milling operations and interest, at the rate of approximately
$20,000 per month for the remainder of 1998.
U.S. Mining Co. and its affiliates have verbally pledged to provide financing to
the Company on an as needed basis until on or about January 1, 1999. The funds
received from USM and its affiliates to date were used to cover general,
administrative and other costs of the Company. Additional funds will be needed
to ready the Franklin Mine and Milling properties for the commencement of
operations and to support the extraction and milling processes once underway as
well as to upgrade the processing facilities to allow for an increase in ore
processing capacity.
There can be no assurance that the Company will have adequate funds available to
repay the funds advanced by USM and its affiliates. In the event that the
Company defaults on its obligations, USM may foreclose on the assets secured by
the POS Note. Such foreclosure actions by USM would have a material adverse
effect on the future operations of the Company and the Company's ability to
explore the Franklin Mines.
In June 1998, the Company sold the Gold Hill Mill for property and equipment
having a fair market value of $725,000 and a 14% note receivable of $350,000.
While the Company incurred a $265,000 loss on the sale, management believes that
the Gold Hill Mill had little prospect of becoming a viable asset due to the
adverse regulatory climate in Boulder, Colorado. Other factors considered in the
decision to dispose of the property included, on going costs of insuring the
property, tax burdens, regulatory compliance costs and a lien on the property
for $350,000 resulting from an obligation of the prior owners which was in
default. All of these factors posed significant burdens on the Company's
resources. Thus, management believes that it was in the best interest of the
Company to dispose of the Gold Hill property and concentrate its efforts on the
Franklin properties.
Results of Operations:
September 30, 1998 and 1997
The Company had no active mining or milling operations during the nine months
ended September 30, 1998 and 1997.
The Company had a net loss of $825,306 and $191,054 for the nine and three
months ended September 30, 1998, respectively as compared to a net loss of
$581,495 and $213,593 during the same periods in 1997. The 1998 nine month loss
was higher due to a $265,000 loss on sale of the Gold Hill Mill Properties in
1998.
General and administrative expenses were $301,322 and $86,102 for the nine and
three months ended September 30, 1998 compared with $419,033 and $174,005 during
the same periods in 1997. This decrease was due to cost controls implemented in
connection with corporate overhead and SEC reporting and compliance.
Interest income was $18,593 and $13,230 for the nine and three months ended
September 30, 1998 compared with $2,855 and $903 during the same periods in
1997. Interest expense was $89,505 and $32,108 during the nine and three month
periods ended September 30, 1998 as compared to $63,776 and $5,491 during the
same periods in 1997. These changes were due to interest incurred on notes in
connection with the Gold Hill Mill and Newmineco acquisitions payable to related
parties in 1997 but not during 1998 offset by an increase in notes payable to
related parties during 1998.
12
PART II
Item 1. Legal Proceedings
Convertible Debentures
On June 1, 1994, the Company advised the Transfer Agent/Trustee that the
Company was not in compliance with certain of the terms of the indenture
(the "Indenture") relating to the Company's 12-1/4% Convertible Debentures
(the "Debentures") in that it had not maintained current filings with the
Securities and Exchange Commission (the "Commission") as required.
Accordingly, the Transfer Agent/Trustee was instructed not to convert any
of the Debentures into Common Stock of the Company until such time as the
Company notified the Transfer Agent. The Company failed to make required
sinking fund payments in 1994 and was unable to pay the principal balance
of the Debentures due on December 31, 1994 resulting in a default under the
terms of the Indenture.
Although the Company was in default, it agreed to continue to make
quarterly interest payments to the Debenture Holders during fiscal year
1995 until such time as the principal amount of the Debentures could be
paid in full. It was anticipated that the Company would have the funds
available to make such payments by December 31, 1995. The Company made the
first quarterly interest payment due on the Debentures in 1995 but has
failed to make any additional payments with respect to such interest as of
the date hereof.
In December 1995, the Company sent notices to the debenture holders
requesting their consent to extend the maturity date of the Debentures to
December 31, 1996. It was also contemplated that the conversion rights of
such holders would also be extended at its current rate of $.50 per share.
The Company also agreed that it would bring current all interest payments
due and owing to such holders through December 31, 1995, prepay interest
which will become due and owing at the end of the first quarter of 1996 and
set up a fund with the Transfer Agent/Trustee to secure the timely payment
of the principal amount of the Debentures on December 31, 1996. The Company
set February 15, 1996 as the date upon which all Debenture Holders had to
submit their consent forms to the Company indicating whether they agreed to
extend the maturity date as to their bonds or reject such proposal. Any
holder which failed to return a consent form within the prescribed time was
to be treated as having consented to the extension. As of the February 15,
1996, the Company received a negative response from one holder owning
$1,000 principal amount of Debentures.
While the Company intended to comply with the terms of its agreements with
the holders of the Debentures, a series of unforeseen circumstances
relating to the Company's permits and reclamation bond caused a cash flow
shortage. As a result the Company has been unable to make the payments
described above. Management is hopeful that the Company's limited cash flow
will improve in the near future and at such time intends to comply with the
terms of its December 1995 agreements. As of September 30, 1998, the
accrued and unpaid interest on the Debentures is approximately $62,000.
On January 17, 1997, the Company received a letter from counsel to James E.
Hopis, Revocable Trust, a holder of $5000 of Debentures of the Company
demanding payment of such bond immediately or legal action will be taken
against the Company to collect on such Debenture. In September, 1997,
certain of the Company's 12-1/4% Convertible Debenture holders, including
the Hopis Trust (the "Plaintiff Debenture holders") instituted an action in
the Supreme Court of the State of New York against the Company for payment
on approximately $42,500 principal amount of Debentures plus accrued and
unpaid interest totaling approximately $13,000 and other costs and expenses
related thereto. The Company has answered the aforesaid complaint.
Thereafter, the Plaintiff Debenture holders moved for summary judgment
against the Company. The Company chose not to oppose the motion and a
default judgment was entered against the Company in the amount of $42,500
plus interest, costs and disbursements (the "Judgment"). Moreover, the
issue of attorney's fees were severed from the case and all to be set down
for an inquest.
In February, 1998, USM entered into an agreement with the Plaintiff
Debenture holders agreeing to pay the Judgement plus certain additional
costs in the event that the Company fails to pay the Judgment and USM
consummates the Transaction with the Company. In the event that USM does
not consummate the Transaction by July 12, 1998, USM agreed to pay the
Plaintiff Debenture holders $5,100 for their agreement not to enter the
Judgment against the Company or pursue the inquest. Plaintiff Debenture
holders have agreed not to enter
13
Item 1. Legal Proceedings (continued)
the Judgment against the Company until July 12, 1998 or until USM notifies
them that it will not pursue the Transaction. The termination date of the
USM Agreement has been further extended to on or about December 25, 1998.
As of the date hereof, the Company is not aware of any termination or
modification of the Agreement and believes it is in full force and effect.
However, there can be no assurance that USM will not terminate this
Agreement or that the Agreement will expire; the result of which will be
the entering of the Judgement against the Company and a possible inquest as
to the Company's liability regarding attorney's fees.
The continued default and failure to comply with the 1994 and December 1995
agreements may result in Company being subject to additional legal
proceedings by the Transfer Agent/Trustee under the Indenture or from other
holders seeking immediate payment of the $102,500 plus related interest and
penalties. While the Company hopes to cure the default or, in the
alternative, reach an acceptable settlement arrangement with the holders,
there can be no assurance that the funds will be available in the future to
meet all of the Company's obligations. Management remains hopeful that
payment or, in the alternative, commencement of settlement negotiations,
will delay the commencement of any legal action until the Company can make
the appropriate arrangements to repay the Debenture holders.
Golder Litigation
On or about February 5, 1996, Bradley, Campbell, Carney & Madsen, P.C.,
Colorado counsel to the Company, Gems, Zeus and Newmineco ("BCCM") entered
into a contract with Golder Associates, Inc. ("Golder"), pursuant to which
Golder agreed to perform certain services at the Mogul Mine pertaining to
environmental issues, including, but not limited to, (a) reviewing surface
and groundwater quality and compliance standards, (b) reviewing 110
permitting requirements, applications and responses, (c) reviewing certain
environmental plans relating to the Mogul Mine and (d) assessing water
discharge requirements and dispensing advice with respect to water
discharge and surface spring outflow management and mitigation of poor
drainage quality (the "Mogul Tunnel Contract"). At the time of the Mogul
Tunnel Contract, BCCM allegedly entered into said contract as an agent of
Durango, the lessee of the Mogul Mine at that time.
On or about February 5, 1996, BCCM entered into a second contract with
Golder, pursuant to which Golder agreed to perform certain services at the
Franklin Mines and Franklin Mill pertaining to environmental issues,
including, but not limited to, (a) phase 1 site assessment, (b) preliminary
regulatory and permit review, (c) engineering site inspections, (d) designs
for surface water management at the ore handling facility, (e) technical
memorandum on alternatives for the extension of #5 tailings pond, (f)
assistance in negotiation with the DMG and (g) recommendations for bulk ore
sampling and mineralogical testing at the Franklin Mines (the "Franklin
Mine Contract"). At the time of the Franklin Mines Contract, BCCM allegedly
entered into said contract as an agent of the Zeus Joint Venture.
On or about August 23, 1996, Gems executed a note to Golder in the
aggregate principal amount of $268,683.75 and a note to BCCM in the
aggregate principal amount of $109,785.35 to secure legal and engineering
fees outstanding as of such date. Each note was due and payable on or
before December 23, 1996 and bears interest at a rate of 6% per annum. In
the event that the payments of principal and interest under the notes were
not paid when due, all principal and interest will accrue additional
interest at a rate of 10% per annum. The notes were secured by a pledge of
approximately 3,600,000 shares of Common Stock of the Company owned by
Gems, pursuant to a Security Agreement, dated August 23, 1996. Any default
under the notes constituted an event of default under the Security
Agreement. Gems failed to make the required payments as of December 23,
1996.
On or about January 28, 1997, Golder commenced an action against BCCM,
Zeus, the Company, Gems, Island, and Durango in the United States District
Court of the District of Colorado to recover sums due and owing from the
Defendants for breach of contract, breach of implied warranty,
misrepresentation, negligent misrepresentation, default under the Golder
note and quantum merit arising out of each of the Mogul Tunnel Contract and
the Franklin Mine Contract. The Company is a named defendant to this
litigation by virtue of its general partnership interest in Zeus, it being
joint and severally liable with Gems and Nuco as general partners in the
Joint Venture.
14
Item 1. Legal Proceedings (continued)
The aggregate amount of the Golder claims are approximately $281,670.99
plus prejudgment and post judgment interest, costs and expenses (including
attorney's fees) and any additional relief granted by the court,
$124,159.87, exclusive of interest and other costs and expenses, of which
is attributable to the Mogul Tunnel Contract and $157,511.12, exclusive of
interest and other costs and expenses, of which is attributable to the
Franklin Mines Contract.
On or about March 12, 1997, BCCM filed a motion to dismiss counts III, IV,
and V of the Complaint relating to the breach of warranty,
misrepresentation and negligent misrepresentation arguing that these claims
were pled in the alternative and only become viable in the event other
defendants in the case deny BCCM authority to enter into the subject
contracts. Also on March 12, 1996, Zeus, the Company, Island and Gems moved
to dismiss or stay proceedings pending arbitration arguing that arbitration
clauses in the subject contract require the captioned action to be
submitted to arbitration. However, Durango filed a separate answer to the
Complaint denying that BCCM had any authority to enter into any contract on
behalf of Durango and denying that Durango ratified any exercise of such
authority. Therefore, on or about March 27, 1997, Golder moved to file an
amended complaint to clarify its position that the claims against Durango
are also asserted against the Franklin Defendants. The Company has not
received a copy of such complaint to date. Notwithstanding, the parties, on
April 4, 1997, executed a stipulation agreeing to arbitration on all issues
concerning the subject contracts but excluding issues relating to the note
and security agreement.
After several months of negotiation, the Company reached a settlement
agreement with Golder and BCCM pursuant to which the Company has agreed to
pay an aggregate amount of $200,000 in exchange for the discontinuance of
the litigation and general release of the Company from any further
liability. The Company has until December 31, 1998 to make the payment
under the settlement agreement. As of the date hereof, no payments have
been made in connection with this settlement agreement and there can be no
assurance that the Company will be in a position to make such payment on or
before December 31, 1998.
Environmental Matters
As of the date hereof, the Company has no violations against it with
respect to the Franklin Mines and Franklin Mill. While there are no
outstanding violations against the Company at this time, there can be no
assurance that the Company will be able to adequately comply with the
conditions set forth in its permit approval or that future violations will
not arise and that such violations will not lead to interruptions at the
Franklin Mines or Franklin Mill. .
Durango Litigation
On or about February 1, 1996, Newmineco, Island, Gems and Zeus entered into
a series of Transactions with Durango, Thames Hartley, the president of
Durango ("Hartley") and J. Wayne Tatman ("Tatman"), an agent of Durango and
Hartley and president of Consolidated Milling, Inc. ("Consolidated
Milling") to develop certain mining properties, including the Mogul Mines.
On or about March 1996, Island acquired the Rugg/Mogul Lease through a
Novation Agreement. The Rugg/Mogul Lease was then renegotiated and assigned
to Newmineco. Thereafter, Island and Gems notified the Company that Tatman,
Hartley and Durango and certain other parties to the Newmineco venture
breached their agreements and as a result, Island terminated certain
venture agreements involving these persons. Island thereafter assigned its
interest in Newmineco to Gems.
In June, 1996, Durango and/or Hartley served a series of Notices of Intent
to Lien properties owned or leased by each of Gems, Island and the Company,
including the Gold Hill Mill. Thereafter, on or about October 15, 1996,
James A. Wood and David C. Sutton, each the owner of claims located on the
properties comprising the Mogul Mines (the "Delaware Claims" and the
"Bonanza Claims", respectively) and Durango, as the proported lessee of
such claims, commenced an action in District Court, Boulder County,
Colorado, against the Ruggs, Island, Newmineco, the Company and any other
unknown parties of interest to quiet title to each of the Delaware Claim
and Bonanza Claims (hereinafter the "Disputed Claims"). The complaint
further alleges that the defendants have removed ore mined from the
Disputed Claims and that, as a result of trespass and conversion of certain
equipment of Plaintiff Durango, plaintiffs have been further damaged in the
amount of approximately $800,000. In addition to the actions for quiet
title and for the adjudication of the ownership of the disputed Claims,
Plaintiffs requisite damages for conversion of Plaintiff Durango's
equipment, seeks a full accounting of the ore removed from the premises and
request all other damages, costs and expenses, including attorney's fees
incurred with respect to this dispute.
15
Item 1. Legal Proceedings (continued)
On or about November 1, 1998, all parties, in settlement of these suits,
agreed to withdraw their claims against each other in full settlement
thereof. It is expected that all documentation regarding this agreement
will be executed, delivered and filed with the appropriate courts prior to
year end.
NASDAQ Delisting
In 1996, the Commission approved certain amendments to the requirements for
continued listing on the NASDAQ Small-Cap Market. On February 27, 1998, the
Company received a notification letter from NASDAQ informing the Company
that the Company's Common Stock was not in compliance with the new minimum
bid price requirement of $1.00 which became effective on February 23, 1998.
On June 5, 1998, after effectuating a reverse split of the Company's common
stock, NASDAQ found the Company to be in compliance with the bid price
requirement and all other requirements necessary for continued listing on
NASDAQ.
On November 10, 1998, the Company received notification from NASDAQ that,
based upon their review of the price data covering the last thirty
consecutive trade dates, the Company's common stock had failed to maintain
a closing bid price of $1.00. In order to remain eligible for continued
listing on the NASDAQ Small Cap Market, the Company must regain compliance
with the minimum bid price requirement within 90 days from the date of the
notification letter; the Company's securities would be subject to
delisting, effective the close of business February 10, 1999. The Company
would be considered to be in compliance with the minimum bid price rule if
at any time prior to February 10, 1999, the shares of common stock of the
Company reported a closing bid price of $1.00 or greater for 10 consecutive
trading days.
Management believes that, given past trends, the Company's Common Stock may
not sustain trading for ten consecutive trading days at minimum bid price
of $1.00 or more prior to February 10, 1999. In that event, the Company's
Common Stock will be delisted and will no longer be traded on the NASDAQ
Small Cap Market. However, Management is hopeful that, in the event of
delisting, the Company's Common Stock will qualify for trading on the
Over-The-Counter/Bulletin Board ("OTC") market and the Company will make
every effort to include its Common Stock on the OTC in the likely event of
a delisting by NASDAQ.
In the event that the Company's Common Stock is traded on the OTC, it may
become subject to the "penny stock" trading rules. The penny stock trading
rules impose additional duties and responsibilities upon broker-dealers
recommends the purchase of a penny stock (by a purchaser that is not an
accredited investor as defined by Rule 501(a) promulgated by the Commission
under the Securities Act) or the sale of a penny stock. Among such duties
and responsibilities, with respect to a purchaser who has not previously
had an established account with the broker-dealer, the broker-dealer is
required to (i) obtain information concerning the purchaser's financial
situation, investment experience, and investment objectives, (ii) make a
reasonable determination that transactions in the penny stock are suitable
for the purchaser and the purchaser (or his independent adviser in such
transactions) has sufficient knowledge and experience in financial matters
and may be reasonably capable of evaluating the risks of such transactions,
followed by receipt of a manually signed written statement which sets forth
the basis for such determination and which informs the purchaser that its
unlawful to effectuate a transaction in the penny stock without first
obtaining a written agreement to the transaction. Furthermore, until the
purchaser becomes an established customer (i.e., having had an account with
the dealer for at least one year or, the dealer had effected three sales or
more of penny stocks on three or more different days involving three or
more different issuers), the broker-dealer must obtain from the purchaser a
written agreement to purchase the penny stock which sets forth the identity
and number of shares of units of the security to be purchased prior to
confirmation of the purchase. A dealer is obligated to provide certain
information disclosures to the purchaser of penny stock, including (i) a
generic risk disclosure document which is required to be delivered to the
purchaser before the initial transaction in a penny stock, (ii) a
transaction-related disclosure prior to effecting a transaction in the
penny stock (i.e., confirmation of the transaction) containing bid and
asked information related to the penny stock and the dealer's and
salesperson's compensation (i.e., commissions, commission equivalents,
markups and markdowns) connection with the transaction, and (iii) the
purchaser-customer must be furnished account statements, generally on a
monthly basis, which include prescribed information relating to market and
price information concerning the penny stocks held in the customer's
account. The penny stock trading rules do not apply to those transactions
in which the broker-dealer or salesperson does not make any purchase or
sale recommendation to the purchaser or seller of the penny stock.
16
Item 1. Legal Proceedings (Continued)
Required compliance with the penny stock trading rules affect or will
affect the ability to resell the Common Stock by a holder principally
because of the additional duties and responsibilities imposed upon the
broker-dealers and salespersons recommending and effecting sale and
purchase transactions in such securities. In addition, many broker-dealers
will not effect transactions in penny stocks, except on an unsolicited
basis, in order to avoid compliance with the penny stock trading rules. The
penny stock trading rules consequently may materially limit or restrict the
liquidity typically associated with other publicly traded equity
securities. In this connection, the holder of Common Stock may be unable to
obtain on resale the quoted bid price because a dealer or group of dealers
may control the market in such securities and may set prices that are not
based on competitive forces. Furthermore, at times there may be a lack of
bid quotes which may mean that the market among dealers is not active, in
which case a holder of Common Stock may be unable to sell such securities.
Because market quotations in the over-the-counter market are often
subjected to negotiation among dealers and often differ from the price at
which transactions in securities are effected, the bid and asked quotations
of the Common Stock may not be reliable.
Redstone Litigation
On or about May 14, 1998, Redstone Securities Inc. ("Redstone") commenced
an action against the Company in the Supreme Court of the State of New
York, County of Nassau, Index No. 98-013668, claiming , among other things,
breach of contract, fraudulent inducement and unjust enrichment in
connection with an Investment Banking Agreement, dated August 28, 1996,
between Redstone and the Company. The complaint requests relief in the
amounts of not less than $600,000 plus punitive damages, costs, interest
and other expenses. On or about July 31, 1998, the Company answered the
complaint and filed a cross complaint against Redstone alleging, among
other things, abuse of process, fraud, breach of fiduciary duty, breach of
contract and interference with prospective financial advantage. The Company
believes that it sustained damages of approximately $6,000,000 plus costs
and expenses. The Company intends to vigorously defend this suit and
aggressively pursue its claims against Redstone.
Item 3. Defaults Upon Senior Securities
As of September 30, 1998, the Company continues to be in default with
respect to the payment of $145,000 principal amount of its 12-1/4
Convertible Debentures (the "Debentures"), which have accrued and unpaid
interest thereon as of September 30, 1998 in the amount of approximately
$62,000.
While it remains the intention of the Company to pay its outstanding
obligations with respect to the Debentures, the Company has been unable to
meet its obligations to such holders as a result of unforeseen liquidity
and cash flow shortages. As a result of its continued default, the Company
may be subject to legal proceedings by or on behalf of debenture holders
seeking payment of principal and all interest as well as any penalties and
other legal remedies the holders may claim they are entitled to receive
under the law. There can be no assurance that the Company will have
adequate funds available to make the payments required under the December
1995 Agreements or that the commencement of legal proceedings will not have
a material adverse effect on the Company.
Item 4. Submission of Matters to a Vote of Security Holder
On October 12, 1998, the Company held its annual meeting of shareholders in
New Jersey at which time the shareholders (i) re-elected Mr. Waligunda and
elected William C. Martucci, Ronald Ginsberg and Robert W. Singer to the
Board of Directors of the Company (ii) approved an amendment to the
Certificate of Incorporation to change the name of the Company to "WCM
Capital Corp." and (iii) confirmed Lazar, Levine & Felix as independent
auditors of the Company.
Of the 3,955,173 shares entitled to vote at the meeting, 2,458,623 were
present either in person or by proxy constituting a quorum for purposes of
conducting the business which was brought before the meeting. The following
table sets forth the matters brought before the shareholders, the number of
votes cast for, against or withheld, as well as the number of abstentions
and broker non-votes, if any, for each matter.
17
Matter For Against Abstain Withheld Non-votes
- ------ --- ------- ------- ------------------
Election of Bill Martucci
As a Director 2,411,706 46,917 ---------- ---------------
Election of Robert
Waligunda as Director 2,443,750 14,873 ---------- --------------
Election of Ronald
Ginsberg as a Director 2,411,718 46,905 ---------- ---------------
Election of Robert W.
Singer as a Director 2,411,714 16,476 --------- ----------------
Amendment to Certificate
Of Incorporation for
Name change 2,434,302 16,476 7,845 ------------
Confirmation of
Independent Auditors 2,427,679 21,743 9,201
The Amended and Restated Certificate of Incorporation was filed with the
Secretary of State of the State of Delaware on October 16, 1998.
Item 5. Other Information
On or about August 3, 1998, the Company entered into agreements with each
of USM (the "USM Agreement") and William Martucci (the "POS Agreement").
Pursuant to the USM Agreement, USM agreed to forgive indebtedness of the
Company, which included a note, dated March 5, 1998, in the principal
amount of $955,756.22, plus interest, to POS (which was later assigned to
USM, the "POS Note"), release the security interest of USDM in the assets
of the Company securing the POS Note and assign its rights to the
Hayden-USM Purchase Agreement in exchange for 11,197,413 shares or 42.5% of
the issued and outstanding shares of the Company. The Hayden-USM Purchase
Agreement is for the purchase by USM of Hayden's 50% interest in the
Hayden-Kennec Leases.
Under the terms of the POS Agreement, Martucci agreed to sell to the
Company 100% of the outstanding shares of POS in exchange for 11,197,413
shares or 42.5% of the issued and outstanding shares of the Company. POS
owns and operates free standing ATM Kiosks located in retail outlets. As a
condition precedent to the consummation of the transactions contemplated by
each of the USM Agreement and the POS Agreement, the Company was required
to obtain stockholder approval in a timely manner of such transactions.
In August, 1998, the Company filed a preliminary proxy statement with the
Securities and Exchange Commission (the"Commission") for its annual meeting
of stockholders, which included proposals to approve each of the USM
Agreement and the POS Agreement. Shortly aft the filing of the preliminary
proxy materials, the Commission informed the Company that the staff of the
Commission (the "Staff") would be conducting a full review of the proxy
materials and the underlying proposals. The Company informed USM and
Martucci of the Staff's inquiry and was thereafter notified that USM and
Martucci wished to terminate the agreements under the premise that the
Company could not secure stockholder approval of the transactions in a
timely manner. See Item 4. Submission of Matters to a Vote of Security
Holders for further information about the Annual Meeting of Shareholders of
the Company held October 12, 1998.
18
Item 5. Other Information (continued)
On September 21, 1998, the Company received a letter from USM concerning
the monies loaned to the Company by USM, which included the monies owed to
USM by the Company pursuant to the terms of the POS Note and an additional
$144,280 loaned to the Company subsequent to the date of the POS Note. The
letter contained a settlement proposal to satisfy all amounts due and owing
to USM. On September 25,. 1998, the Company responded to the USM letter
with a counter proposal and thereafter the parties commenced active
negotiations in an attempt to resolve this matter favorably.
At a meeting of the Board of Directors of the Company on October 8, 1998 a
settlement agreement was approved whereby USM would convert the entire
amount of the Company's indebtedness to USM into shares of common stock of
the Company at a conversion price equal to 50% of the closing bid price as
of the close of business October 7, 1998. The price of the Company's common
stock at the close of business on October 7, 1998 was $.66 per share.
Therefore, the conversion rate under the settlement agreement would be one
share of common stock of the Company for each $.33 of indebtedness of the
Company to USM.
It was further agreed that the settlement plan would be implemented in a
two step transaction. Approximately $306,160 of loans would be paid by
converting that portion into 927,757 shares of common stock of the Company
which would have resulted in USM holding approximately 19% of the total
issued and outstanding shares of common stock of the Company. The
conversion of the remaining indebtedness would be predicated upon either
(i) stockholder approval of the issuance of more than 20% of the Company's
common stock in the aggregate to USM at a discount to market price as
required by the rules of corporate governance promulgated by the Nasdaq
Small Cap Market, or (ii) the issuance of a waiver by the NASDAQ Small Cap
Market which would allow the Company to issue the shares without holding
special meeting of its stockholders, provided that the Company notify the
shareholders 10 days prior to the issuance of the shares to USM. USM also
agreed that it would continue to provide the Company with financing going
forward as further inducement to consummate the settlement agreement set
forth above.
Due to the fact that the Company had already expended significant monies to
conduct a proxy solicitation for its annual meeting scheduled on October
12, 1998, the Company decided to make an application to NASDAQ for a waiver
of the meeting requirement described above.
On October 19, 1998, the Company made a formal application to NASDAQ in
accordance with Rule 4310(C)(25)(H)(ii) of the NASDAQ Stock Market for a
waiver of the requirement that the Company call a meeting of its
stockholders to approve the issuance of over 20% in the aggregate of its
tock to USM at a price below market price. The rule allows for a waiver of
this requirement when, among other things, a delay in securing stockholder
approval would seriously jeopardize the financial viability of the Company.
On or about October 24, 1998, the NASDAQ Stock Market contacted the Company
indicated that it was inclined to deny the Company's application unless
additional information was submitted for review. The Company thereafter
withdrew its application and re-opened negotiations with USM. Although the
Board of Directors of the Company has approved the issuance of 927,757
shares of common stock of the Company, such shares have not been issued.
The Company however, continues to be in default of the POS Note and has
not, as of the date hereof, repaid any of the amounts owed to USM. The
Company and USM are continuing negotiations with respect to the outstanding
monies owed to USM and USM is still funding the Company.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Press Release dated October 28, 1998 Press Release dated November
11, 1998
B. Reports on Form 8-K
None
19
SIGNATURE
In accordance with the requirements of the Securities and Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
FRANKLIN CONSOLIDATED MINING CO, INC.
Date: November 24, 1998 /s/ Robert Walligunda
--------------------------------------------
Robert Walligunda, President
s 20