SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2000
COMMISSION FILE NO. 0-31159
TREND MINING COMPANY
(Exact Name of Small Business Issuer as Specified in its Charter)
MONTANA 81-0304651
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
401 FRONT AVENUE
SUITE 1, SECOND FLOOR
COEUR D'ALENE, IDAHO 81506
(Address of principal executive offices) (Zip Code)
(208) 664-8095
(Issuer's telephone number)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes /X/ No / /
There were 18,467,320 shares of the Registrant's no par value common stock
outstanding as of January 31, 2001.
Transitional Small Business Disclosure: Yes / / No /X/
PART I
ITEM 1. FINANCIAL STATEMENTS
The Board of Directors
Trend Mining Company
(Formerly Silver Trend Mining Company)
Coeur d'Alene, Idaho
ACCOUNTANT'S REVIEW REPORT
We have reviewed the accompanying balance sheet of Trend Mining Company
(formerly Silver Trend Mining Company) (an exploration stage company) as of
December 31, 2000 and the related statements of operations and comprehensive
loss, stockholders' equity (deficit), and cash flows for the three months then
ended, and for the period from November 4, 1998 (inception of exploration stage)
to December 31, 2000. All information included in these financial statements is
the representation of the management of Trend Mining Company.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit in accordance with
auditing standards generally accepted in the United States of America, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with accounting principles generally accepted in the United States of
America.
The financial statements for the year ended September 30, 2000 were audited by
us and we expressed an unqualified opinion on it in our report dated December
15, 2000. We have not performed any auditing procedures since that date.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company's significant operating losses raise
substantial doubt about its ability to continue as a going concern. Management's
plans regarding the resolution of this issue are also discussed in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Williams & Webster, P.S.
CERTIFIED PUBLIC ACCOUNTANTS
Spokane, Washington
February 16, 2001
2
TREND MINING COMPANY
(FORMERLY SILVER TREND MINING COMPANY)
(AN EXPLORATION STAGE COMPANY)
BALANCE SHEETS
December 31, September 30,
2000 2000
(Unaudited)
----------------- -----------------
ASSETS
CURRENT ASSETS
Cash $ 34,094 $ 102,155
Prepaid expenses 3,424 1,725
Equipment held for resale 4,000 4,000
----------------- -----------------
Total Current Assets 41,518 107,880
----------------- -----------------
MINERAL PROPERTIES 181,673 181,673
----------------- -----------------
PROPERTY AND EQUIPMENT, net of depreciation 35,690 40,177
----------------- -----------------
OTHER ASSETS
Investments 98,820 107,250
----------------- -----------------
NONCURRENT ASSETS
Net assets of discontinued operations 70,333 70,333
----------------- -----------------
TOTAL ASSETS $ 428,034 $ 507,313
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY(DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 474,871 $ 323,228
Accounts payable to directors and officers 30,795 11,100
Accrued expenses 7,639 19,447
Note payable to stockholder 285,000 -
Current portion of long-term debt 3,166 2,992
----------------- -----------------
Total Current Liabilities 801,471 356,767
----------------- -----------------
LONG-TERM DEBT, net of current portion 9,471 10,389
----------------- -----------------
COMMITMENTS AND CONTINGENCIES - -
----------------- -----------------
STOCKHOLDERS' EQUITY(DEFICIT)
Common stock, no par value, 30,000,000
shares authorized; 18,381,309 and
18,232,776 shares issued and outstanding,
respectively 3,094,678 2,967,499
Stock options and warrants 129,592 24,065
Pre-exploration stage accumulated deficit (614,555) (614,555)
Accumulated deficit during exploration stage (3,021,935) (2,276,439)
Accumulated other comprehensive income 29,312 39,587
----------------- -----------------
TOTAL STOCKHOLDERS' EQUITY(DEFICIT) (382,908) 140,157
----------------- -----------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY(DEFICIT) $ 428,034 $ 507,313
================= =================
See accompanying notes and accountant's review report.
3
TREND MINING COMPANY
(FORMERLY SILVER TREND MINING COMPANY)
(AN EXPLORATION STAGE COMPANY)
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
For the Period From
November 4, 1998
(Inception of
For the Three Months Ended Exploration Stage)
---------------------------------------- to
December 31, December 31, December 31,
2000 1999 2000
(Unaudited) (Unaudited) (Unaudited)
-------------------- ----------------- ----------------------
REVENUES $ - $ - $ -
-------------------- ----------------- ----------------------
EXPENSES
Mineral property expense 104,044 60,033 1,031,922
General and administrative 401,640 15,876 689,895
Officers and directors compensation 72,300 33,000 355,545
Legal and professional 157,675 6,316 532,510
Depreciation 4,487 100 15,598
-------------------- ----------------- ----------------------
Total Expenses 740,146 115,325 2,625,470
-------------------- ----------------- ----------------------
OPERATING LOSS (740,146) (115,325) (2,625,470)
-------------------- ----------------- ----------------------
OTHER INCOME (EXPENSE)
Dividend and interest income 108 25 1,612
Loss on disposition and impairment of assets - - (136,674)
Gain (loss) on investment sales (3,500) 5,420 2,227
Financing expense - - (78,980)
Interest expense (1,958) - (3,599)
Miscellaneous income - 100 3,890
-------------------- ----------------- ----------------------
Total Other Income (Expense) (5,350) 5,545 (211,524)
-------------------- ----------------- ----------------------
LOSS BEFORE INCOME TAXES (745,496) (109,780) (2,836,994)
INCOME TAXES - - -
-------------------- ----------------- ----------------------
LOSS FROM CONTINUING OPERATIONS (745,496) (109,780) (2,836,994)
DISCONTINUED OPERATIONS
Loss from operations of gold and
silver mining, net of income tax - - (184,941)
-------------------- ----------------- ----------------------
NET LOSS (745,496) (109,780) (3,021,935)
-------------------- ----------------- ----------------------
OTHER COMPREHENSIVE LOSS
Change in market value of investments (10,275) (16,064) (87,768)
-------------------- ----------------- ----------------------
NET COMPREHENSIVE LOSS $ (755,771) $ (125,844) $ (3,109,703)
==================== ================= ======================
BASIC AND DILUTED NET LOSS PER SHARE,
CONTINUING OPERATIONS $ (0.04) $ (0.02) $ (0.34)
==================== ================= ======================
BASIC AND DILUTED NET LOSS PER SHARE,
DISCONTINUED OPERATIONS $ nil $ nil $ (0.02)
==================== ================= ======================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 18,288,419 5,496,290 8,267,529
==================== ================= ======================
See accompanying notes and accountant's review report.
4
TREND MINING COMPANY
(FORMERLY SILVER TREND MINING COMPANY)
(AN EXPLORATION STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY(DEFICIT)
Common Stock
---------------------- Stock Other
Number Options and Accumulated Comprehensive
of Shares Amount Warrants Deficit Income Total
---------- --------- ----------- ----------- ------------- -----------
Balance, October 1, 1998 2,258,254 $ 930,516 $ - $ (609,536) $ 117,080 $ 438,060
Common stock issuances as follows:
- for cash at an average of $0.07 per share 555,000 41,000 - - - 41,000
- for prepaid expenses at $0.10 per share 50,000 5,000 - - - 5,000
- for consulting services at an average of
$0.09 per share 839,121 74,753 - - - 74,753
- for mineral property at $0.13 per share 715,996 89,631 - - - 89,631
- for officers' compensation at an average of
$0.13 per share 300,430 39,000 - - - 39,000
- for debt and investment at $0.20 per share 9,210 1,842 - - - 1,842
- for directors' compensation at an average of
$0.25 per share 16,500 4,125 - - - 4,125
- for rent at $0.25 per share 1,000 250 - - - 250
- for equipment at $0.30 per share 600,000 180,000 - - - 180,000
Issuance of stock options for financing activities 2,659 2,659
Net loss - - - (434,199) - (434,199)
Other comprehensive loss - - - - (79,179) (79,179)
---------- ---------- ---------- ----------- ---------- -----------
Balance, September 30, 1999 5,345,511 1,366,117 2,659 (1,043,735) 37,901 362,942
Common stock and option issuances as follows:
- for employee, officer and director
compensation at an average of
$0.34 per share 231,361 79,525 11,406 - - 90,931
- for officers' and directors' compensation
at an average of $1.17 per share 11,500 13,445 - - - 13,445
- for services at an average of $0.12 per share 530,177 61,198 - - - 61,198
- for mineral property at $0.30 per share 100,000 30,000 - - - 30,000
- for investments at $0.13 per share 200,000 26,000 - - - 26,000
- for cash at an average of $0.11 per share 11,419,009 1,298,651 - - - 1,298,651
- for incentive fees at $0.25 per share 65,285 16,321 - - - 16,321
- for deferred mineral property acquisition
costs at $0.13 per share 129,938 16,242 - - - 16,242
- for modification of stockholder agreement
at $0.30 per share 200,000 60,000 - - - 60,000
Cash received for the issuance of common stock
warrants for 7,979,761 shares for stock - - 10,000 - - 10,000
Miscellaneous common stock adjustments (5) - - - - -
Net loss for the year ended September 30, 2000 - - - (1,847,259) - (1,847,259)
Other comprehensive income - - - - 1,686 1,686
---------- ---------- ---------- ----------- ---------- -----------
Balance, September 30, 2000 18,232,776 2,967,499 24,065 (2,890,994) 39,587 140,157
Common stock and option issuances as follows:
- for cash of $1.00 per share 100,000 100,000 - - - 100,000
- for cash and services from
options for $0.37 per share 33,333 12,173 (2,173) - - 10,000
- for services at $1.00 per share 10,000 10,000 - - - 10,000
- for compensation at $0.96 per share 5,200 5,006 - - - 5,006
Warrants issued for services - - 107,700 - - 107,700
Net loss for the period ended
December 31, 2000 (unaudited) - - - (745,496) - (745,496)
Other comprehensive loss - - - - (10,275) (10,275)
---------- ---------- ---------- ----------- ---------- -----------
Balance, December 31, 2000 (unaudited) 18,381,309 $3,094,678 $ 129,592 $ (3,636,490) $ 29,312 $ (382,908)
========== ========== ========== =========== ========== ===========
See accompanying notes and accountant's review report.
5
TREND MINING COMPANY
(FORMERLY SILVER TREND MINING COMPANY)
(AN EXPLORATION STAGE COMPANY)
STATEMENTS OF CASH FLOWS
For the Period From
November 4, 1998
(Inception of
For the Three Months Ended Exploration Stage)
---------------------------- to
December 31, December 31, December 31,
2000 1999 2000
(Unaudited) (Unaudited) (Unaudited)
------------ ------------ -------------------
Cash flows from operating activities:
Net loss $ (745,496) $ (109,780) $ (3,021,935)
Adjustments to reconcile net income (loss) to
net cash used by operating activities:
Depreciation 4,487 100 15,598
Loss (gain) on investment sales 3,500 - 3,193
Loss on disposition and impairment of assets - - 136,674
Loss on disposition of assets, discontinued operations - - 176,279
Common stock issued for services
and expenses - 25,050 184,076
Common stock and options issued as compensation 5,006 - 109,382
Common stock issued for storage - - 250
Stock options issued for financing activities - - 2,659
Common stock issued for agreement modification - - 60,000
Warrants issued for consulting fees 107,700 - 107,700
Common stock issued for incentive fees - - 16,321
Common stock issued for services 10,000 - 10,000
Changes in assets and liabilities:
Accounts receivable - 1,000 -
Related party receivable - (4,784) -
Prepaid expenses (1,699) - (3,424)
Accounts payable 163,001 22,860 491,636
Accrued expenses (11,808) 4,434 (7,723)
------------ ------------ ------------
Net cash used in operating activities (465,309) (61,120) (1,719,314)
------------ ------------ ------------
Cash flows from investing activities:
Payment of deposit - - (1,000)
Return of deposit - - 1,000
Proceeds from sale of equipment - - 33,926
Proceeds from sale of mineral property - - 20,000
Purchase of furniture & equipment - - (37,654)
Purchase of mineral properties - - (40,000)
Proceeds of investments sold 2,992 36,685 37,236
------------ ------------ ------------
Net cash provided by investing activities 2,992 36,685 13,508
------------ ------------ ------------
Cash flows from financing activities:
Payments on notes payable (744) - (3,225)
Payments on short-term borrowings - (10,000) (4,000)
Sale of warrants for common stock - - 10,000
Proceeds from short-term borrowings 285,000 2,000 287,000
Sale of common stock, subscriptions
and exercise of options 110,000 105,000 1,449,651
------------ ------------ ------------
Net cash provided by financing activities 394,256 97,000 1,739,426
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH (68,061) 72,565 33,620
CASH, BEGINNING OF YEAR 102,155 8,998 474
------------ ------------ ------------
CASH, END OF YEAR $ 34,094 $ 81,563 $ 34,094
============ ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 369 $ - $ 2,010
Taxes paid $ - $ - $ -
NON-CASH FINANCING ACTIVITIES:
Common stock issued for acquisition of
mineral property $ - $ - $ 89,631
Common stock issued for acquisition of
resale equipment $ - $ - $ 180,000
Common stock issued for services and expenses $ 10,000 $ 25,050 $ 194,076
Common stock issued for storage $ - $ - $ 250
Common stock issued for investment $ - $ - $ 1,000
Common stock issued for debt $ - $ - $ 842
Deferred acquisition costs on mining property $ - $ - $ 46,242
Stock options issued for financing activities $ - $ - $ 2,659
Warrants issued for consulting fees $ 107,700 $ - $ 107,700
Common stock issued for incentive fees $ - $ - $ 16,321
Common stock issued for agreement modifications $ - $ - $ 60,800
Common stock and options issued as compensation $ 5,006 $ - $ 109,382
Purchase of equipment with financing agreement $ - $ - $ 14,093
See accompanying notes and accountant's review report.
6
TREND MINING COMPANY
(FORMERLY SILVER TREND MINING COMPANY)
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Trend Mining Company (formerly Silver Trend Mining Company) ("the Company") was
incorporated on September 7, 1968 under the laws of the State of Montana for the
purpose of acquiring, exploring and developing mining properties. In November
1998, the Company discontinued development of silver and gold properties and
changed its focus to exploration of platinum and palladium related metals only.
In February 1999, the Company changed its name from Silver Trend Mining Company
to Trend Mining Company to better reflect the Company's change of focus to the
platinum group of metals. The Company conducts operations primarily from its
offices in Coeur d'Alene, Idaho. The Company has elected a September 30 fiscal
year-end.
The Company is actively seeking additional capital and management believes that
additional stock can be sold to enable the Company to continue to fund its
property acquisition and platinum group metals exploration activities. However,
management is unable to provide assurances that it will be successful in
obtaining sufficient sources of capital.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies is presented to assist in
understanding the Company's financial statements. The financial statements and
notes rely on the integrity and objectivity of the Company's management. These
accounting policies conform to accounting principles generally accepted in the
United States of America and have been consistently applied in the preparation
of the financial statements.
ACCOUNTING METHOD
The Company's financial statements are prepared using the accrual method of
accounting.
BASIC AND DILUTED LOSS PER SHARE
Basic and diluted loss per share is computed by dividing the net loss by the
weighted average number of shares outstanding during the year. The weighted
average number of shares is calculated by taking the number of shares
outstanding and weighting them by the length of time that they were outstanding.
Outstanding options and warrants representing 8,704,261 shares and 10,000,000
shares, respectively, for the three months ended December 31, 2000 and 1999,
have been excluded from the calculation of loss per share as they would be
antidilutive.
CASH AND CASH EQUIVALENTS
For purposes of the Statement of Cash Flows, the Company considers all
short-term debt securities purchased with a maturity of three months or less to
be cash equivalents.
COMPENSATED ABSENCES
The Company's employees are entitled to paid vacation, paid sick days and
personal days off depending on job classification, length of service and other
factors. The Company estimates that the amount of compensation for future
absences is minimal and immaterial for the period ended December 31, 2000 and
the year ended September 30, 2000 and, accordingly, no liability has been
recorded in the financial statements. The Company's policy is to recognize the
cost of compensated absences when compensation is actually paid to employees.
7
TREND MINING COMPANY
(FORMERLY SILVER TREND MINING COMPANY)
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPREHENSIVE INCOME (LOSS)
The Company reports comprehensive income (loss) in accordance with FASB
Statement No. 130, "Reporting Comprehensive Income." Accordingly, accumulated
other comprehensive income or loss is included in the stockholders' equity
section of the balance sheets. Amounts are reported net of tax and include
unrealized gains or losses on available for sale securities.
DERIVATIVE INSTRUMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This standard establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities on the
balance sheet and measure those instruments at fair value, at the appropriate
date.
At December 31, 2000, the Company had not engaged in any transactions that would
be considered derivative instruments or hedging activities.
ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
EXPLORATION STAGE ACTIVITIES
The Company has been in the exploration stage since November 4, 1998 and has no
revenues from operations. The Company is primarily engaged in the acquisition
and exploration of mineral properties. Should the Company locate a commercially
viable reserve, the Company would expect to actively prepare the site for
extraction. The Company's accumulated deficit prior to the exploration stage was
$614,555.
EXPLORATION COSTS
In accordance with accounting principles generally accepted in the United States
of America, the Company expenses exploration costs as incurred. Exploration
costs expensed during the period ended December 31, 2000 and 1999 were $104,044
and $60,033, respectively. As of December 31, 2000, the exploration costs
expensed during the Company's exploration stage were $1,031,922
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts for cash, accounts payable, notes payable and accrued
liabilities approximate their fair value.
GOING CONCERN
As shown in the accompanying financial statements, the Company has no revenues,
has incurred a net loss of $745,496 for the period ended December 31, 2000 and
has an accumulated deficit of $3,636,490. These factors indicate that the
Company may be unable to continue in existence.
8
TREND MINING COMPANY
(FORMERLY SILVER TREND MINING COMPANY)
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOING CONCERN (CONTINUED)
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's management believes that it will be able to generate sufficient
cash from public or private debt or equity financing for the Company to continue
to operate based on current expense projections.
IMPAIRED ASSET POLICY
In March 1995, the Financial Accounting Standards Board issued a statement SFAS
No. 121 titled "Accounting for Impairment of Long-lived Assets." In complying
with this standard, the Company reviews its long-lived assets quarterly to
determine if any events or changes in circumstances have transpired which
indicate that the carrying value of its assets may not be recoverable. The
Company determines impairment by comparing the undiscounted future cash flows
estimated to be generated by its assets to their respective carrying amounts.
The Company does not believe any adjustments are needed to the carrying value of
its assets at December 31, 2000.
INVESTMENT POLICIES
The Company uses the average cost method to determine the gain or loss on
investment securities held as available-for-sale based upon the accumulated cost
bases of specific investment accounts.
MINERAL PROPERTIES
Costs of acquiring mineral properties are capitalized by project area upon
purchase of the associated claims. Costs to maintain the mineral rights and
leases are expensed as incurred. When a property reaches the production
stage, the related capitalized costs will be amortized, using the units of
production method on the basis of periodic estimates of ore reserves.
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 unamoritized 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.
NON-EMPLOYEE STOCK COMPENSATION
The Company values common stock issued for services, property and investments
based upon the fair market value of the common stock. Management's assessment of
the fair market value of the common stock includes the current market
conditions, assessment of the Company's financial position and funding
requirements, and trading restrictions on the common stock issuances.
RECLASSIFICATIONS
Certain amounts from prior periods have been reclassified to conform to the
current period presentation. This reclassification has resulted in no changes to
the Company's total accumulated deficit or net losses presented.
9
TREND MINING COMPANY
(FORMERLY SILVER TREND MINING COMPANY)
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVERSE STOCK SPLIT
The Company's board of directors authorized a 1 for 10 reverse stock split of
its no par value common stock. (See Note 4.) All references in the accompanying
financial statements to the number of common shares outstanding and per share
amounts have been restated to reflect the reverse stock split.
SEGMENT REPORTING
The Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," in the fiscal year ended September 30, 1999. SFAS No.
131 requires disclosures about products and services, geographic areas and major
customers. The adoption of SFAS No. 131 did not affect the Company's results of
operations or financial position. The Company's mining properties were not
engaged in any business activity. The Company had no segments engaged in
business activities at December 31, 2000 and, therefore, no segment reporting is
required.
NOTE 3 - MINERAL PROPERTIES
The following describes the Company's significant mineral properties:
WYOMING PROPERTIES
During the year ended September 30, 1999, the Company entered into an agreement
with General Minerals Corporation (GMC) to acquire the Lake Owen Project located
in Albany County, Wyoming. The agreement with GMC entitled the Company to
receive 104 unpatented mining claims in exchange for 715,996 shares of common
stock, $40,000 in cash to be paid in four quarterly payments of $10,000 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 for the acquisition of the Lake Owen Project.
See Notes 4 and 13.
The Company has located an additional 500 unpatented mining claims in an agreed
area of interest near the Lake Owen Project.
The Company also staked and claimed six claims known as the Albany Project
during the year ended September 30, 1999. These claims are located in Albany
County, Wyoming.
The Company also staked and claimed 42 unpatented mining claims known as the
Spruce Mountain claims and 179 unpatented mining claims known as the Centennial
West claims. These claims are also located in Albany County, Wyoming.
During the period ended December 31, 2000, the Company located and staked 162
unpatented mining claims in Albany County, Wyoming, including 34 and 121 claims,
which were staked at the Douglas Creek and Keystone properties, respectively.
OREGON PROPERTY
During the year ended September 30, 1999, the Company entered into an agreement
in which it would explore and stake five claims located in Jackson County,
Oregon known as the Shamrock property. All transactions have been completed and
the Company has acquired title to these claims.
10
TREND MINING COMPANY
(FORMERLY SILVER TREND MINING COMPANY)
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
NOTE 3 - MINERAL PROPERTIES (CONTINUED)
NEVADA PROPERTY
During the year ended September 30, 1999, the Company entered into an agreement
whereby Mountain Gold Exploration would explore and stake claims, transferring
title to the Company upon completion thereof. Transactions were finalized for 13
claims known as the Hardrock Johnson Property located in Clark County, Nevada.
During the period ended December 31, 2000, the Company located and staked 31
unpatented claims known as the Willow Springs Claims. These claims are located
in Nye County, Nevada.
MONTANA PROPERTIES
During March 2000, the Company acquired an option to purchase 8 mining claims in
Madison County, Montana, called the Intrepid Claims. The Company has paid $5,800
cash and issued 100,000 shares of its common stock at $0.30 per share under this
option. If the Company has not terminated the agreement by November 2001, an
additional 100,000 shares of its common stock will be issued.
Also in Montana during 2000, the Company staked 121 claims for the Vanguard
Project. The Company explored and staked 36 claims known as the McCormick Creek
Project in Missoula County. Furthermore, the Company located and staked 433
claims in Stillwater County prior to December 31, 2000.
CALIFORNIA PROPERTIES
The Company located 79 unpatented mining claims, known as the Pole Corral
property, in Tehema County, California. The Company located 33 unpatented mining
claims known as the Cisco Butte property in Placer County, California.
CANADIAN PROPERTY
In August 2000, the Company entered into an agreement whereby Spectra Management
Corporation would explore and stake five claims representing about 66,000 acres
for the Company in northern Saskatchewan. This property is now known as the
Peter Lake Claims.
The following property is being disposed of as a discontinued operation pursuant
to the Company's new focus on platinum and palladium related metals exploration,
which commenced on November 4, 1998:
NEVADA PROPERTY
In 1997, the Company acquired the Pyramid Mine, which consists of five
unpatented lode mining claims near Fallon, Nevada. The claims are within the
Walker Indian Reservation and located on the site of an old bombing range. As of
the date of these financial statements, no clean up has commenced on these
claims. The Company is not aware of any pending requirements for clean up of
hazardous materials.
NOTE 4 - COMMON STOCK
On February 16, 1999, the Company's board of directors authorized a 1 for 10
reverse stock split of the Company's no par value common stock. As a result of
the split, 26,356,430 shares were retired. All references in the accompanying
financial statements to the number of common shares and per-share amounts for
the period ended December 31, 2000 and the year ended September 30, 2000 have
been restated to reflect the reverse stock split.
11
TREND MINING COMPANY
(FORMERLY SILVER TREND MINING COMPANY)
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
NOTE 4 - COMMON STOCK (CONTINUED)
During the year ended September 30, 2000, the Company issued 76,194 shares of
common stock, valued at $31,345 to officers and directors, as compensation;
530,177 shares of common stock valued at $61,198 for services provided to the
Company; 100,000 shares of common stock valued at $30,000 in exchange for
mineral property; 200,000 shares of common stock valued at $26,000 for New
Jersey Mining Company common stock; 65,285 shares of common stock valued at
$16,321 as incentive fees and 11,419,009 shares of common stock for cash of
$1,298,651.
The Company also issued 16,667 shares of common stock valued at $5,000 to an
employee as part of his employment agreement. The Company also issued to General
Minerals Corporation (GMC) an additional 129,938 shares valued at $16,242 as
part of the deferred acquisition cost of the Lake Owens Project. In addition,
the Company issued 200,000 shares of common stock valued at $60,000 as partial
consideration for the termination of certain preemptive rights held by GMC.
During the three month period ended December 31, 2000, the Company issued 10,000
shares of common stock valued at $10,000 for services, 38,533 shares of common
stock valued at $15,006 as compensation, and 100,000 shares of common stock sold
for $100,000 cash as a private placement.
See Note 6 regarding future loan repayments in units of Trend securities.
NOTE 5 - COMMON STOCK OPTIONS AND WARRANTS
The Company has a Stock Option Plan, which was initiated to encourage and enable
qualified officers, directors and other key employees to acquire and retain a
proprietary interest in the Company by ownership of its common stock. A total of
ten percent of the currently issued and outstanding shares of the Company's
common stock may be subject to, or issued pursuant to the terms of the plan. No
options have been issued under the plan as of December 31, 2000.
During 1999, the Company granted various stockholders options to acquire 150,000
shares of common stock at prices varying from $0.15 to $0.35 per share as
additional incentives for various stock purchases.
In February 2000, the Company granted an employee options until February 25,
2002 to acquire 33,333 shares of common stock at an exercise price of $0.30 per
share as compensation. The fair value of this option estimated on the grant date
using the Black-Scholes Option Price Calculation was $2,173. The employee
exercised these options in October 2000.
During the period ended September 30, 2000, the Company's board of directors
issued options to purchase 67,000 shares of its common stock at $0.50 per share
to six retired directors. The options were based on years of service and are
exercisable from April 15, 2000 to April 15, 2003. The fair value of these
options estimated on the grant date using the Black-Scholes Option Price
Calculation was $9,233.
As partial consideration for an amendment to the GMC option agreement, the
Company granted to GMC in June 2000 a warrant to purchase 200,000 shares for
$0.70 per share exercisable until June 12, 2002. This warrant had no discernable
fair value when issued.
12
TREND MINING COMPANY
(FORMERLY SILVER TREND MINING COMPANY)
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
NOTE 5 - COMMON STOCK OPTIONS AND WARRANTS (CONTINUED)
On November 17, 2000, the Company entered into a consulting agreement with R. H.
Barsom Company, Inc., under which the consultant would perform certain services
for the Company until June 30, 2001, for an advance fee of $100,000 and 180,000
shares of common stock. In early January 2001, the Company and the consultant
agreed to terminate the agreement. In connection with the termination, the
consultant surrendered the 180,000 shares of common stock and received warrants
to purchase 180,000 shares of Trend Mining common stock at $1.50 per share,
exercisable for approximately two years. The fair value of these warrants
estimated on the grant date using the Black-Scholes Option Price Calculation was
$25,200, which was included in consulting expenses for the quarter ended
December 31, 2000.
On November 8, 2000, effective November 1, 2000, the Company entered into a
24-month agreement with Eurofinance Inc. where the entity would assist the
Company with certain investment community matters in return for a monthly fee of
$5,000, plus expenses and warrants to purchase 820,000 shares of common stock.
The warrants were exercisable until November 1, 2005. In early January 2001,
this agreement was terminated, with the Company no longer obligated for the
remaining monthly fees, and only the warrant for 250,000 shares that vested on
November 1, 2000 remains outstanding. The fair value of this warrant estimated
on the grant date using the Black-Scholes Option Price Calculation was $82,500
which was included in consulting expenses for the quarter ended December 31,
2000.
In the above Black-Scholes Option Price Calculations, the Company used the
following assumptions to estimate fair value: the risk-free interest rate was
5.5%, volatility was 30%, and the expected life of the options and warrants
varied from two to five years.
TIGRIS FINANCIAL GROUP LTD./ELECTRUM LLC
On December 29, 1999, the Company entered into a stock purchase agreement with
Tigris Financial Group Ltd. under which Tigris purchased 1,000,000 shares of the
Company's common stock for $100,000, was granted an option until March 28, 2000
to acquire up to an additional 3,500,000 shares of common stock for an exercise
price of $0.14 per share, (or $490,000 in the aggregate), and was granted an
option to purchase, for $10,000, warrants to buy an additional 6,250,000 shares
of the Company's common stock at an exercise price of $0.40 per share. On March
8, 2000, Tigris assigned its rights under the stock purchase agreement to
Electrum LLC.
Electrum exercised its option and acquired 3,500,000 shares of the Company's
common stock in March 2000. Pursuant to the terms of the stock purchase
agreement, upon exercise of this first option, Electrum was granted an option
until September 25, 2000 to purchase up to an additional 4,608,000 shares of
common stock at an exercise price of $0.14 per share, or $645,120 in the
aggregate.
On June 27, 2000, the Company and Electrum entered into an amendment to the
stock purchase agreement pursuant to which a previous option to purchase
4,608,000 shares was terminated. These options were replaced with an option
until July 5, 2000 to acquire up to an additional 1,597,588 shares at $0.062 per
share or $100,000 in the aggregate and, upon exercise in full of this option, an
option until September 25, 2000 to acquire up to an additional 4,470,174 shares
at an exercise price of $0.115 per share, or $545,120 in the aggregate. In
addition, the option to purchase warrants was terminated and replaced with an
option to purchase, for $10,000, warrants to buy up to 7,979,761 shares at an
exercise price of $0.40 per share until September 20, 2003.
13
TREND MINING COMPANY
(FORMERLY SILVER TREND MINING COMPANY)
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
NOTE 5 - COMMON STOCK OPTIONS AND WARRANTS (CONTINUED)
Electrum has exercised all of its options to purchase the Company's common stock
and its option to purchase the warrant. In connection with its acquisition of
those shares, Electrum assigned 3,530,174 shares and 500,000 warrants to third
parties. Subsequently, Electrum has assigned an additional 2,000,000 shares and
500,000 warrants.
As of December 31, 2000, Tigris and Electrum own approximately 30% of the
Company's outstanding common stock and, upon exercise of Electrum's warrants and
assuming the Company has issued no other shares, would own nearly 50% of the
Company's then outstanding common stock.
Electrum had certain preemptive rights, which were not exercised and have been
subsequently terminated. Tigris and Electrum have the right to proportional
representation on the Company's board of directors and registration rights for
all of the Company's common stock acquired through this agreement held by them.
As of December 31, 2000 and 1999, the Company had warrants outstanding as
described representing 8,609,761 and 6,500,000 shares of common stock,
respectively.
Following is a summary of the status of the options during the year ended
September 30, 2000 and the period ended December 31, 2000:
Weighted
Average Exercise
Number of Shares Price
---------------------- -----------------
Outstanding at October 1, 1999 250,000 $ .39
Granted 9,990,595 .14
Exercised (9,962,762) .14
Forfeited - -
Revised (100,000) .57
Expired (50,000) .35
---------------------- -----------------
Outstanding at September 30, 2000 127,833 $ .50
====================== =================
Options exercisable at September 30, 2000 127,833 $ .50
====================== =================
Outstanding at October 1, 2000 127,833 $ .50
Granted - -
Exercised 33,333 .30
Forfeited - -
Revised - -
Expired - -
---------------------- -----------------
Outstanding at December 31, 2000 94,500 $ .57
====================== =================
Options exercisable at December 31, 2000 94,500 $ .57
====================== =================
Exercise Date
- --------------------------
On or before July 19, 2001 15,000 $ .50
On or before July 19, 2002 12,500 $1.00
On or before April 14, 2003 67,000 $ .50
14
TREND MINING COMPANY
(FORMERLY SILVER TREND MINING COMPANY)
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
NOTE 6 - RELATED PARTY TRANSACTIONS
The Company has accrued director and officer fees in the amounts of $30,795 at
December 31, 2000, which included $11,800 owed to an officer who was paid in
January 2001, in common stock. As of December 31, 1999, the Company owed fees to
officers and directors of $11,100.
In June 2000, the Company and GMC amended the Lake Owen option agreement.
Pursuant to the amendment, the Company issued 416,961 shares at an average price
of $0.06 per share to GMC in connection with the exercise by GMC of preemptive
rights. In addition, the Company agreed to perform an additional $15,000 of
geophysical survey work on the Lake Owen project prior to December 31, 2000,
issued 200,000 additional shares of common stock to GMC and granted to GMC a
warrant to purchase 200,000 shares for $0.70 per share exercisable until June
12, 2002 in exchange for GMC's agreement to terminate its antidilution and
preemptive rights as provided in the original Lake Owen option agreement. The
geophysical survey work period has been extended beyond December 31, 2000.
RELATED PARTY LOANS
In November 2000, the Company borrowed $135,000 from Electrum. The loan bears
interest at an annual rate of 5% and is due either on December 1, 2005 or upon
the Company's completion of a public or private debt or equity financing.
In December 2000, the Company entered into an agreement with Electrum to provide
a right to borrow an additional $250,000. The loan obtained under this agreement
bears interest at 8% and is due on June 30, 2001 or upon the Company's
completion of a public or private debt or equity financing. As of December 31,
2000, the Company had borrowed $150,000 on this agreement.
The loan agreement provides that if both of these loans are not repaid by
February 1, 2001, the Company is required to grant Electrum warrants to purchase
285,000 shares of the Company's common stock at $1.50 per share exercisable
through September 30, 2003. The loans were not repaid by February 1, 2001, and
the warrants have been issued. Electrum may also elect to be repaid the total
amounts outstanding under both loans in "units" of Trend securities, at the rate
of one unit per each dollar owed. Each unit would consist of one share of common
stock and a warrant to purchase one share of common stock at $1.50 per share,
exercisable through September 30, 2003. Electrum has agreed that at least
$100,000 of the November 2000 loan will be repaid in units. This conversion of
debt to equity was not reflected in the financial statements as of December 31,
2000.
NOTE 7 - PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Major additions and improvements
are capitalized. Minor replacements, maintenance and repairs that do not
increase the useful lives of the assets are expensed as incurred. Depreciation
of property and equipment, including vehicles, is being calculated using the
straight-line method over the expected useful lives of five years of the assets.
Depreciation expense for the period ended December 31, 2000 and the year ended
September 30, 2000 was $4,487 and $10,823, respectively.
15
TREND MINING COMPANY
(FORMERLY SILVER TREND MINING COMPANY)
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
NOTE 7 - PROPERTY AND EQUIPMENT (CONTINUED)
The following is a summary of property, equipment, and accumulated depreciation.
December 31, September 30,
2000 2000
----------------- ------------------
Furniture and Equipment $ 51,258 $ 51,258
Less: Accumulated Depreciation (15,568) (11,081)
----------------- ------------------
$ 35,690 $ 40,177
================= ==================
NOTE 8 - INVESTMENTS
The Company's securities investments are classified as available-for-sale
securities which are recorded at fair value in investments and other assets on
the balance sheet, with the change in fair value during the period excluded from
earnings and recorded net of tax as a component of other comprehensive income.
The Company has no securities, which are classified, as trading securities.
The Company recognized a gain in other comprehensive income of $1,686 for the
year ended September 30, 2000, while the Company recognized a loss in other
comprehensive income for the change in the market value of investments of
$10,275 and $16,664 for the periods ended December 31, 2000 and 1999,
respectively.
Available-for-sale securities consist of common stock stated at fair value and
are summarized as follows:
December 31, September 30,
Investment 2000 2000
----------------------------------- ------------------ -----------------
New Jersey Mining Company $98,820 $107,250
================== =================
NOTE 9 - NOTES PAYABLE
Following is a summary of long-term debt at December 31, 2000:
Note payable to First Security Bank, N.A.
Interest at 14.99%, secured by vehicle, payable in monthly
installments of $179 through February 28, 2003 $ 3,954
Note payable to First Security Bank, N.A.
Interest at 14.99%, secured by vehicle, payable in monthly
installments of $231 through April 7, 2005 8,683
--------
Total notes payable 12,637
Less: Current maturities included in current liabilities (3,166)
--------
$ 9,471
========
16
TREND MINING COMPANY
(FORMERLY SILVER TREND MINING COMPANY)
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
NOTE 9 - NOTES PAYABLE (CONTINUED)
Following are the maturities of long-term debt for each of the next five years
ending on September 30:
2001 $ 2,248
2002 3,608
2003 2,884
2004 2,345
2005 1,552
--------
$ 12,637
========
NOTE 10 - INCOME TAXES
At December 31, 2000, the Company accumulated operating losses approximating
$3,500,000. These operating losses may be offset against future taxable income,
however there is no assurance that the Company will have income in the future.
Accordingly, the potential tax benefit of the net operating loss carryforward is
offset by a valuation allowance of the same amount. The Company's ability to
utilize these net operating loss carryforwards may be limited by ownership
changes.
The Company has not filed a tax return for year ended September 30, 1999, and is
considered deficient with respect to that filing. As the above operating losses
will carry forward to the income tax return for the year ended September 30,
1999, it is unlikely that the Internal Revenue Service will impose penalties for
underpayment of income taxes. However, the Company may be subject to failure to
timely file penalties that are considered immaterial to these financial
statements. No provision for the recoverability of tax benefits has been
reported in the financial statements of the Company, due to their uncertainty.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
LAKE OWEN OPTION AGREEMENT
In July 1999, the Company executed an option agreement with General Minerals
Corporation (hereinafter "GMC") wherein the Company may earn a 100% interest in
a mineral property in Albany County, Wyoming in exchange for its payment of
exploration expenditures during the three-year option period, which commenced on
July 27, 1999. Under the agreement, the Company is obligated to spend $750,000
on exploration expenditures for this project, commonly known as the Lake Owen
property, during the option period, with no less than $150,000 of such
expenditures to be made within the first year. The agreement was amended in June
2000 to include $15,000 of geophysical survey work.
In consideration for the aforementioned option, the Company paid GMC $40,000 in
cash and issued to GMC 715,996 shares in 1999 and 129,938 shares in 2000. In
connection with the exercise and termination of certain preemptive rights, GMC
acquired 616,961 shares and a warrant for an additional 200,000 shares.
17
TREND MINING COMPANY
(FORMERLY SILVER TREND MINING COMPANY)
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
NOTE 11 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
LEASE AGREEMENTS
Through the year ended September 30, 2000, the Company rented office facilities
in Coeur d'Alene, Idaho on a month-to-month basis for $350 per month. Total
rents paid during the year ended September 30, 2000 were $3,150.
During the period ended December 31, 2000, the Company entered into a lease for
its executive offices in Coeur d'Alene. The lease has a three-year term with
monthly rent of $2,656 in addition to a $2,656 security deposit. The Company has
the option to extend the lease for an additional two years at a monthly rent of
$2,921. The Company's rent expense was modified for payments for improvements
that were considered to be in lieu of lease expense. Total rents expensed during
the period ended December 31, 2000 were $8,001.
In July 2000, the Company entered into a new lease agreement for additional
office facilities in Reno, Nevada. The agreement is a two year lease and calls
for monthly payments of $1,725 during the first year and $1,775 during the
second year in addition to a $350 security deposit. Prior to the signing of this
lease, the Company had occupied the facilities on a month-to-month basis for
$1,714 per month. Total rents during the period ended December 31, 2000 and the
year ended September 30, 2000 were $5,245 and $3,438, respectively.
The minimum lease payment maturities as of December 31, 2000 to be paid for
three years based upon year ending September 30 are as follows:
2001 $ 39,429
2002 47,397
2003 31,872
----------
Total $ 118,698
==========
CONSULTING AGREEMENTS
During the period ended December 31, 2000, the Company entered into an agreement
with a consultant, under which the consultant would perform certain services for
the Company until June 30, 2001, for an advance fee of $100,000 and 180,000
shares of common stock. In early January 2001, the Company and the consultant
agreed to terminate the agreement. In connection with the termination, the
consultant surrendered the 180,000 shares of common stock and received warrants
to purchase 180,000 shares of Trend Mining common stock at $1.50 per share.
During the period ended December 31, 2000, the Company entered into a 24-month
agreement with an investment consultant for a monthly contract fee of $5,000 and
expenses. As part of this agreement, the Company agreed to issue warrants for
the purchase 820,000 shares of the Company's common stock exercisable over a
five-year period at an exercise price of $1.50 per share. On January 18, 2001,
this agreement was terminated, with the Company no longer obligated for the
remaining monthly fees, and only the warrant for 250,000 shares remains
outstanding.
18
TREND MINING COMPANY
(FORMERLY SILVER TREND MINING COMPANY)
(AN EXPLORATION STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
NOTE 11 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
On October 31, 2000, the Company entered into a consulting agreement with Mr.
Brian Miller under which Mr. Miller would perform certain services for the
Company. Under this agreement, Mr. Miller received cash for his services and was
granted 10,000 shares of common stock effective at the earlier of December 31,
2000 or the termination of the consulting arrangement. Mr. Miller satisfied his
responsibilities under the agreement, and the 10,000 shares of common stock were
issued on January 2, 2000.
NOTE 12 - IMPAIRMENT OF ASSETS
During the year ended September 30, 1999, the Company initiated a plan to
dispose of mining equipment. In connection with the plan of disposal, the
Company determined that the carrying value of such assets exceeded their fair
values. Accordingly, a loss of $14,000, which is included as part of the
Company's loss on disposition and impairment of assets and represents the excess
of the carrying value of $18,000 over the fair value of $4,000, has been charged
to operations in the year ended September 30, 1999. The fair value is based on
the net selling price estimated relative to current market conditions. At
December 31, 2000 management determined no further impairment was necessary.
NOTE 13 - DISCONTINUED OPERATIONS
On November 4, 1998, the Company adopted a formal plan to sell its silver and
gold operations. Net assets of discontinued operations totaled $269,086. These
assets consisted of the Company's mineral properties at that date.
During the year ended September 30, 1998, the Company purchased, through the
issuance of 150,000 shares of its common stock, four patented mining claims
known as the Rae Wallace Mine located north of Anchorage, Alaska. The property
was recorded at the fair market value of the shares paid on the date of issuance
at $0.50 per share for a total purchase price of $75,000. In the year ended
September 30, 1999, the Company sold the property for $20,000, resulting in a
loss of $55,000. The Company retained a 2.5% net smelter return in the property,
which is not valued for financial purposes.
In July 2000, the Company entered into an agreement with New Jersey Mining
Company (New Jersey) whereby the Company received 50,000 shares of New Jersey's
restricted common stock in exchange for New Jersey's opportunity to earn a 100%
interest less a net smelter royalty in the Company's unpatented claims in
Kootenai County, Idaho. This agreement, concerning the claims known as the
Silver Strand Mine, which was part of the Company's prior silver mining
activities, will require a three-year work commitment totaling $200,000. If the
work commitment is not met, the Company will receive additional common stock of
New Jersey. The Company will retain a 1.5% net smelter return until an aggregate
of $50,000 in net smelter royalties have been received. Thereafter, the
Company's net smelter return will decrease to 0.5%.
Mineral property expense related to discontinued operations were recorded at
$121,279 for the year ended September 30, 2000. For the three-month periods
ended December 31, 2000 and 1999, the Company recognized no expenses related to
the discontinued operations.
19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Our loss for the quarter ended December 31, 2000 was $745,000 which
increased our accumulated deficit as of December 31, 2000 to $3,636,000. We
have inadequate cash to fund our planned acquisition and exploration activities
and other operations during the next 12 months. These factors raise substantial
doubts about our ability to continue as a going concern without raising
significant additional capital.
Since February 2000, the exercise by Electrum LLC of its options to
acquire our common stock and other private financing have generated
approximately $1,289,000 in funds to finance our planned activities. As of
February 12, 2001, we have borrowed approximately $335,000 from Electrum LLC,
our largest stockholder, to fund certain activities pursuant to financial
arrangements under which we can borrow an additional $50,000. We expect to
borrow the remaining funds from Electrum in the near future. Electrum has
agreed to convert at least $100,000 of the debt to equity and has received
warrants exercisable until September 30, 2003 to purchase 285,000 shares of
common stock for $1.50 per share. We need to seek additional financing from
the public or private debt or equity markets to continue our business
activities. In connection with our proposed reincorporation in Delaware, we
will be increasing our authorized common stock from 30,000,000 to 100,000,000
shares, authorizing 20,000,000 shares of preferred stock and entering an
arrangement with our largest shareholders which would give them the right to
approve the issuance of equity securities. There can be no assurance that
Electrum will continue to advance funds to us or that our efforts to obtain
additional financing will be successful. If we are unable to raise additional
capital, we may have to suspend or cease operations.
If we are able to raise additional capital on acceptable terms, our
primary business objective in 2001 will be to focus on the evaluation and
possible acquisition of additional properties which have platinum group
minerals potential. We will focus on satisfying the work commitments that are
required on the Lake Owen property under the Lake Owen option agreement. We
plan to spend from $100,000 to $400,000 during 2001 on claim-staking
activities, scientific analyses of existing geologic data, and general
exploration activities on the Lake Owen property. In addition, we anticipate
spending from $200,000 to $300,000 on a selected basis on our other existing
properties for reconnaissance and detailed exploration work, which may include
geological mapping, geochemical sampling, and/or geophysical surveys. We expect
to spend from $175,000 to $275,000 on new projects and acquisitions during this
period if additional funds are available on acceptable terms for these
activities. During the quarter ended December 31, 2000, our exploration
expenditures totaled $104,000.
As of December 31, 2000, we had a net operating loss for federal
income tax purposes of approximately $3,500,000. A significant portion of
this net operating loss may expire without it being utilized, as we may be
unable to begin profitable operations, which would involve moving from being
an exploration stage company to a development stage company and finally an
operating entity, before its expiration. The net operating loss may be
further limited under Internal Revenue Service rules concerning limitations
from ownership changes. Our management believes there is no current basis for
the recognition of the value of the deferred tax assets derived from the net
operating loss. At such time that our management believes that profitable
operations are imminent, the value of any net operating loss then available
will be used to determine the net deferred tax asset, if any, to be
recognized.
20
FORWARD-LOOKING STATEMENTS
This Form 10-QSB contains forward-looking statements that involve
substantial risks and uncertainties. Investors and prospective investors in our
common stock can identify these statements by forward-looking words such as
"may," "will," "expect," "intend," "anticipate," "believe," "estimate,"
"continue" and other similar words. Statements that contain these words should
be read carefully because they discuss our future expectations, make
projections of our future results of operations or of our financial condition
or state other "forward-looking" information. We believe that it is important
to communicate our future expectations to our investors. However, there may be
events in the future that we are not able to accurately predict or control. The
factors listed in the section captioned "Management's Discussion and Analysis
or Plan of Operation," as well as any cautionary language in this Form 10-QSB,
provide examples of risks, uncertainties and events that may cause our actual
results to differ materially from the expectations we describe in our
forward-looking statements. Investors and prospective investors in our common
stock should be aware that the occurrence of the events described in the
"Management's Discussion and Analysis or Plan of Operation" section and
elsewhere in this Form 10-QSB could have a material adverse effect on our
business, operating results and financial condition.
PART II
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
RECENT SALES OF UNREGISTERED SECURITIES
We had 18,467,320 shares of common stock issued and outstanding as of
January 31, 2001. Of these shares, approximately 2.8 million shares may be sold
without limitation under Rule 144, adopted under the Securities Act of 1933
(the "Securities Act"), and approximately 4.2 million shares can only be resold
in compliance with Rule 144 volume limitations.
Effective February 16, 1999, we completed a 1 for 10 reverse stock
split of our common stock. Unless otherwise stated, all share amounts set forth
in this Form 10-QSB are presented on a post-split basis.
In general, under Rule 144, a person who has beneficially owned shares
privately acquired directly or indirectly from us or from one of our
affiliates, for at least one year, or who is an affiliate, is entitled to sell,
within any three-month period, a number of shares that do not exceed the
greater of 1% of the then outstanding shares or the average weekly trading
volume in our shares during the four calendar weeks immediately preceding such
sale. Sales under Rule 144 are also subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about us. A person who is not deemed to have been an affiliate at
any time during the 90 days preceding a sale, and who has beneficially owned
restricted shares for at least two years, is entitled to sell all such shares
under Rule 144 without regard to the volume limitations, current public
information requirements, manner of sale provisions or notice requirements.
The issuances discussed under this section are exempted from
registration under Rule 506 of the Securities Act ("Rule 504") or Section 4(2)
of the Securities Act ("Section 4(2)"), as provided. All
21
purchasers of the following securities acquired the shares for investment
purposes only and all stock certificates reflect the appropriate legends. No
underwriters were involved in connection with the sales of securities referred
to in this section.
COMMON STOCK
1. On September 22, 2000, we issued 90,000 shares pursuant to Section 4(2) to a
consultant in lieu of cash payment for consulting services valued at $18,000.
2. On October 10, 2000, we issued 33,333 shares pursuant to Section 4(2) to an
employee for a purchase price of $10,000.
3. On October 15, 2000, we issued 10,000 shares pursuant to Section 4(2) to a
consultant in lieu of cash payment for consulting services valued at $10,000.
4. In October 2000, we issued 3,000 shares pursuant to Section 4(2) to one of
our officers in lieu of cash payment for services valued at $3,180.
5. On November 17, 2000, we issued 180,000 shares pursuant to Section 4(2)
valued in the aggregate at approximately $215,000 to a consultant as partial
payment for consulting services. In January 2001, these shares were surrendered
in connection with termination of the consulting agreement and replaced by
warrants as set forth below.
6. On December 6, 2000, we issued 2,200 shares pursuant to Section 4(2) to one
of our employees in lieu of salary payments with a value of $1,826.
7. In December 2000, we issued 100,000 shares pursuant to Rule 506 to two
investors for a purchase price of $100,000.
WARRANTS
1. On November 1, 2000, we granted to a consultant pursuant to Section 4(2)
warrants until November 1, 2005 to purchase 820,000 shares at an exercise price
of $1.50 per share. The warrants were to vest as follows: 250,000 share vested
on November 1, 2000; 250,000 shares vest on May 1, 2001; 200,000 shares vest on
November 1, 2001; and 120,000 shares vest on May 1, 2002. On January 18, 2001,
the agreement underlying the warrant grant was terminated, and only the
warrants for 250,000 shares which vested on November 1, 2000 remain outstanding.
2. In January 2001, we granted to a consultant pursuant to Section 4(2)
warrants until January 2003 to purchase 180,000 shares at an exercise price of
$1.50 per share.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
The following Exhibit is filed herewith.
EXHIBIT
NO. DESCRIPTION OF EXHIBITS
- ------- -----------------------
23.1 Consent of Williams & Webster, P.S., dated February 19, 2001.
- --------------
(b) Reports on Form 8-K.
We did not file any reports on Form 8-K during the quarter ended
December 31, 2000.
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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
Dated: February 19, 2001 By: /s/ Kurt J. Hoffman
-------------------------------------
Kurt J. Hoffman
President and Chief Executive Officer
(Principal Executive Officer)
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EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
23.1 Consent of Williams & Webster, P.S., dated February 19, 2001.