U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB/A
(Mark One)
X : Quarterly report under section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended October 31,
1997.
__: Transition report under section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] for the transition period
from _________ to _________.
Commission File No: 0-25798
HERITAGE MINES, LTD.
(Name of small business in its charter)
Colorado 84-1293168
(State or other (IRS Employer ID. No.)
jurisdiction of Incorporation)
1199 Main Avenue, Ste. 221
Durango, Colorado
81301
(Address of Principal Office) Zip Code
Issuer's telephone number: (970) 385-0374
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities 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 ____
Applicable only to issuers involved in bankruptcy proceedings during
the past five years
Check whether the issuer has filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes ____
No ____
Applicable only to corporate issuers
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 6,487,172.
Transitional Small Business Disclosure
Format (Check one):
Yes ____ No X
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS AND EXHIBITS
(b) Financial statements for Heritage Mines, Ltd. as and for
the quarter ending October 31, 1997, and the comparable period of
the preceding fiscal year.
FINANCIAL STATEMENTS
(A Development Stage Company)
HERITAGE MINES, LTD.
Quarter ended October 31, 1997
HERITAGE MINES, LTD.
(A Development Stage Company)
Condensed Consolidated Balance Sheet
Condensed Consolidated Statement of Operations
Condensed Consolidated Statement of Cash Flows
Notes to Condensed Consolidated Financial Statements
HERITAGE MINES, LTD.
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEET
as of October 31, 1997
(Unaudited)
October 31,
1997
ASSETS
CURRENT ASSETS
Cash and cash equivalents 17,494
Other current assets 19,091
Total Current Assets 36,585
PROPERTY, PLANT,
EQUIPMENT AND MINE
DEVELOPMENT COSTS,
NET OF ACCUMULATED
DEPRECIATION 2,129,436
OTHER ASSETS 52,548
Total Assets 2,218,569
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable 68,577
Accrued expenses and other
liabilities 130,733
Notes payable 774,688
Total current liabilities 973,998
Convertible debentures payable
(including $225,000 to
related parties) 720,000
Total liabilities 1,693,998
STOCKHOLDERS' EQUITY
Preferred stock, no par value:
authorized 10,000,000 shares,
no shares issued and
outstanding -
Common stock, $.0025 stated
value: authorized 200,000,000
shares, issued and outstanding
6,487,172 shares 16,218
Additional paid-in
capital 2,973,169
Deficit accumulated
during the
development stage (2,464,816)
TOTAL STOCKHOLDERS'
EQUITY 524,571
TOTAL LIABILITIES
AND STOCKHOLDERS'
EQUITY 2,218,569
See accompanying notes to condensed consolidated financial statements.
HERITAGE MINES, LTD.
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Three Months
Ended Ended
October 31 October 31
1997 1996
OPERATING REVENUE - -
OPERATING COSTS:
General and
Administrative 244,703 288,795
Depreciation 13,100 16,673
Total operating
costs 257,803 305,468
Loss from
Operations (257,803) (305,468)
OTHER INCOME (EXPENSE)
Interest expense, net (47,210) (1,804)
Other Expense - -
Total Other Income
(Expense) (47,210) (1,804)
NET LOSS (305,013) (307,272)
NET LOSS
PER SHARE (.05) (.03)
WEIGHTED
AVERAGE
COMMON
SHARES 6,487,172 10,418,125
See accompanying notes to condensed consolidated financial statements.
HERITAGE MINES, LTD.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS
Period
from Inception
Nine Months Nine Months (May 14, 1992)
Ended Ended through
October 31 October 31 October 31
1997 1996 1997
OPERATING REVENUES 3,536 - 56,806
OPERATING COSTS
General and
Administrative 653,985 1,042,874 2,444,512
Depreciation 43,524 47,310 195,192
Total operating
costs 697,509 1,090,184 2,639,704
Loss from
Operations (693,973) (1,090,184) (2,582,898)
OTHER INCOME (EXPENSE):
Other Income - - 237,210
Interest expense, net (82,730) (12,360) (119,128)
Total Other Income
(Expense) (82,730) (12,360) 118,082
NET LOSS (776,703) (1,102,544) (2,464,816)
NET LOSS
PER SHARE (.09) (.11) (.81)
WEIGHTED
AVERAGE
COMMON SHARES
OUTSTANDING 8,265,716 10,418,125 3,043,064
See accompanying notes to condensed consolidated financial statements.
HERITAGE MINES, LTD.
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Period
from Inception
Nine Months Nine Months (May 14, 1992)
Ended Ended through
October 31 October 31 October 31
1997 1996 1997
CASH FLOWS FROM
OPERATING
ACTIVITIES:
Net Loss (776,703) (1,102,544) (2,464,816)
Adjustments to reconcile net loss to cash used
in operating activities:
Depreciation 43,524 47,310 195,192
Stock issued
for services - - 25,045
Stockholders' compensation
contributed to
capital - 131,600
Notes and covertible
debentures issued
for services 93,000 - 93,000
Changes in assets and liabilities:
Other current assets (10,837) 12,461 (19,092)
Other assets 7,790 - (10,090)
Accounts payable and
accrued liabilities (112,771) 147,932 296,608
Net cash and cash equivalents provided (used) by
operating activities (755,997) (894,841) (1,752,553)
CASH FLOWS FROM
INVESTING
ACTIVITIES:
Purchase of property
and equipment (40,794) (97,015) (235,592)
Mine development
costs (61,592) (457,552) (1,284,966)
Construction in
progress (9,034) (84,242) (293,006)
Deposits - 3,000 (7,458)
Mining Claims (20,000)
Net cash and cash equivalents provided (used) by
investing activities (111,420) (635,809) (1,841,022)
CASH FLOWS FROM
FINANCING
ACTIVITIES:
Issuance of common
stock for cash 125,000 686,975 869,475
Proceeds from notes
payable to related
parties 34,700 676,323 1,124,700
Proceeds from notes
payable 85,061 140,000 746,640
Advances from
related parties - - 294,500
Repayment of notes
payable and advances (5,867) - 69,246
Proceeds from convertible
debentures payable (includes
related parties of
$20,000) 645,000 - 645,000
Net cash and cash equivalents provided (used) by
financing activities 883,833 1,503,298 3,611,069
NET INCREASE
(DECREASE) IN
CASH AND CASH
EQUIVALENTS 16,416 (27,352) 17,494
CASH AND CASH
EQUIVALENTS,
BEGINNING OF
PERIOD 1,078 23,543 -
CASH AND CASH
EQUIVALENTS,
END OF PERIOD 17,494 (3,809) 17,494
See accompanying notes to condensed consolidated financial statements.
HERITAGE MINES, LTD.
(A Development Stage Company)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Period
from Inception
Nine Months Nine Months (May 14, 1992)
Ended Ended through
October 31 October 31 October 31
1997 1996 1997
Stock issued for services - 24,000 25,045
Stockholders' compensation
contributed to capital - 131,600 131,600
Equipment exchanged for
mining claims - - 15,000
Note payable issued to
related party for property
and equipment - - 327,000
Note payable issued for
plant and equipment - 31,694 106,094
Notes payable converted
to common stock - 100,050 141,885
Stock issued for
subscriptions
receivable - - 127,500
Stock issued for
equipment - - 92,969
Issuance of common stock
in connection with
reorganization - 1,713,413 1,713,413
Notes and accounts payable
exchanged for convertible
debentures 35,000 - 35,000
Common stock exchanged for
conditional notes payable - - -
See accompanying notes to condensed consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:
(October 31, 1997 - Unaudited)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have
been prepared in accordance with Securities and Exchange
Commission requirements for interim financial statements. Therefore,
they do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. The accompanying financial statements should be read in
conjunction with the Company's Form 10-KSB for the year ended
January 31, 1997.
The results of operations for the interim periods shown in this report
are not necessarily indicative of the results to be expected for the full
year. In the opinion of management, the information contained herein
reflects all adjustments necessary to make the results of operations for
the interim periods a fair statement of such operations. All such
adjustments are of a normal recurring nature.
DEVELOPMENT STAGE
From its inception (considered to be May 14, 1992 for the purpose of
these condensed consolidated financial statements), to October 31,
1997, the Company has been in the development stage. The
Company has concentrated its activities to acquire, explore, claim and
permit mineral properties, acquire, repair, retrofit and bring mining
equipment to its intended use, develop the mineral properties to get
them ready for operations and to raise capital to finance the activities
described above. From inception through October 31, 1997, there
have been no active mining operations, although small test runs
generated minimal revenues at the end of the 1997 fiscal year.
GOING CONCERN
The Company has incurred operating losses from inception through
October 31, 1997, has an accumulated deficit of $2,464,816, and
negative working capital of $937,413. During the nine months ended
October 31, 1997, the Company's operations used $755,997 of cash,
and the Company used $111,420 of cash in investing activities. The
Company's cash was provided from the issuance of 50,000 shares of
common stock and issuance of notes and convertible debentures
payable to related parties and others. Management expects that the
Company's cash expenditures for the fiscal year ended January 31,
1998, will not be less than $1,000,000. Larger expenditures may be
incurred based on the Company's development project opportunities,
and available cash resources from operating cash flow and/or from
additional financing.
The Company is in the process of raising between $500,000 and
$1,000,000 through a private placement of convertible debt securities.
As of October 31, 1997, $720,000 of the debentures has been funded.
Management believes that these funds raised may allow the Company
to start limited revenue generating operations in January, 1998.
However, there can be no assurance additional funds will be raised or
will be sufficient to support profitable operations. Additional
financing will be necessary to continue operating and to start any
significant development projects. No adjustments have been made to
the accompanying financial statements to provide for this uncertainty.
2. NOTES PAYABLE
Included in notes payable in the accompanying condensed
balance sheet are 10% convertible notes aggregating $600,000 to one
individual that came due on September 15, 1997. Subsequent to
October 31, 1997, the Company negotiated an extension agreement
with the lender whereby the due date was extended to June 1, 1998.
There were no other material changes to the terms of the note
agreement.
STOCKHOLDERS' EQUITY
Stock Option Plan.
At the Company's annual stockholders' meeting on November
21, 1997, stockholders approved the adoption of the 1997 Stock
Option Plan. The Plan reserves a total of 1,500,000 shares for
issuance of options to eligible persons in the form of either incentive
stock options or non-statutory options. The exercise price of any
incentive stock options must generally be not less that 100% of the
fair market value of the stock on the date of grant of the option. The
exercise price of non-statutory options must be not less that 85% of
the fair market value of the stock on the date of the grant of the
option. The aggregate fair market value of the stock options
exercisable by any optionee during any particular calendar year may
not exceed $100,000.
Persons who own more than 10% of the outstanding stock of
the Company are not eligible to receive incentive stock options under
the plan unless the exercise price is at least 110% of the fair market
value of the stock on the date of grant of the options, and such
options are not exercisable for a period of more than five years after
the date of grant.
The Board of Directors has granted options under the new Plan
for a total of 1,230,000 shares to the Company's two current outside
directors and to its two current executive offices at an exercise price
of $1.67 per share. In conjunction with the adoption of the Plan, the
Company cancelled certain previously outstanding options.
Settlement With Former Officers.
During the quarter ending October 31, 1997, the Company
entered into settlement agreements with two former officers that
included the issuance of phantom stock contracts that provide the
former officers with the right to the appreciation, if any, on an
aggregate 240,000 shares of the Company's common stock above a
strike price of $2.00 per share. Appreciation rights have been granted
on 160,000 common shares with the remaining rights to be granted
over a two-year period. If the grantee decides to exercise his rights to
appreciation, the appreciation value would be paid in share of the
Company's common stock.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
AND PLAN OF OPERATION
PLAN OF OPERATIONS. The long-term goal of the Company is to
become a self-sustaining medium sized precious metals exploration
and mining Company with a solid foundation of credible reserves
which can be developed and produced at costs which are in the lowest
quartile of industry averages. The plan of operations of the Company
for the next twelve months includes hiring additional experienced
management personnel, completion of the sale of the balance of its
convertible debenture offering, acquisition of interests in one or more
additional mining properties, completion of financing of between
$5,000,000 and $10,000,000 to provide funds needed for exploration
and development of its properties, and reaching a sustaining level of
cash flow from limited production on one or more of its properties.
There is no assurance that the Company will be able to complete the
elements of its plan.
MANAGEMENT DISCUSSION AND ANALYSIS.
As of April 28, 1997 the Company commenced a private placement
offering of 15% convertible debentures intended to raise between
$500,000 and $1,000,000 of bridge financing. As of October 31,
$720,000 of the debentures had been funded. Although there is no
assurance as to when or whether the Company will sell the remaining
balance of its debenture offering, it is currently anticipated that a
substantial portion will be sold during the fourth quarter to fully
subscribe the offering. The proceeds of this offering are being used
for payment of outstanding trade payables, providing cash resources
necessary to enable the Company to proceed with acquisition of
certain additional properties, and working capital needed to enable the
Company to hire additional key personnel, establish needed business
systems, and generally prepare itself for other financing arrangements
intended to provide the funds needed to explore and develop the
Bowerman Project and any additional properties it may acquire.
Notwithstanding the completion of the maximum level of its debenture
offering, the Company will be required to raise additional funds in the
next twelve months.
During the third quarter, the Company engaged an investment banking
firm to proceed with a secondary equity offering to be used for
development financing and additional working capital. The Company
has determined that because of the poor state of the market for junior
gold equities, it is not practical to move forward with an equity
offering at this time. The company is currently exploring the
feasibility of a gold denominated debt financing for development of its
projects. Financing in this manner would enable the Company to
more rapidly get to a self-sustaining basis and preclude the need for
further equity financing. This additional financing will be necessary
for the Company to continue operating and to initiate any significant
development projects. Failure to obtain additional financing would
raise substantial doubts about the Company's ability to continue as a
going concern.
On or about May 31, 1997, the Company completed the repurchase of
a total of 4,034,896 shares of its common stock from a group of its
founding shareholders, thereby reducing the number of issued and
outstanding shares from 10,522,068 to 6,487,172. The repurchase
was completed in exchange for issuance of conditional promissory
notes. The notes are convertible at any time, at the option of the
Company into newly issued shares of common stock. To the extent
not converted by the Company, the notes are payable at the rate of
$2.00 per share purchased for each 500,000 ounces of prov-
en/probable gold reserves discovered on the Bowerman Project within
a period of 5 years. No payments are due under the notes unless a
minimum of 500,000 ounces of proven/probable gold reserves are
discovered on the Bowerman Project within 5 years from the date of
repurchase of the shares. No financial value was recorded on this
repurchase because of the uncertainty as to the amount, if any, of
payments that ultimately might be due on the conditional notes
payable.
The purpose of the share roll-back plan was to reduce the number of
currently issued and outstanding common shares of the Company in
order to enhance the value of shares acquired by new investors in the
Company.
The Company previously signed a letter of intent concerning acquisi-
tion of an interest in a property known as the Lelan-Dividend Project
located in Yavapai County, Arizona. The Company was not able to
complete its debenture offering in time to meet initial funding require-
ments for acquisition of a joint venture interest in this Project prior to
expiration of the letter of intent. No additional action is expected on
this Project until additional financing is obtained.
While developing and effecting its redirection and recapitalization
plans, the Company suspended operations at its Bowerman Gold
Project located in Siskiyou County, California. Planning and analysis
is now underway to investigate the potential for metallurgical circuit-
modifications in the plant and development of a pilot stoping area in
the mine which will allow for restarting production by the second
quarter of 1998.
The Board of Directors has authorized management to proceed with
negotiations to acquire from the Company's President a one-third
interest in Bushmaster Mining, Inc. which owns the Million Mountain
Project located in Guyana SA. The proposed acquisition would be
financed primarily with common stock of the Company. The
Company for a management fee would manage development of the
project.
Completion of at least a portion of the contemplated additional debt
financing will be required to effect plans for acquisition of interests in
additional projects and to restart production at the Bowerman Project
and to start any further development of the proposed Million
Mountain Project.
This report contains various forward-looking statements that are based
on the Company's beliefs as well as assumptions made by and infor-
mation currently available to the Company. When used in this report,
the words "believe," "expect," "anticipate," estimate and similar
expressions are intended to identify forward-looking statements. Such
statements may include statements regarding reserves, resources,
mineralized material or deposits, mining methods, political and related
matters, planned levels of exploration, and the like, and are subject to
certain risks, uncertainties and assumptions which could cause actual
results to differ materially from projections or estimates contained
herein. Factors which could cause actual results to differ materially
include, among others, unanticipated grade, geological, metallurgical,
processing or other problems, conclusions of feasibility studies,
changes in project parameters as plans continue to be refined, the
timing of receipt of governmental permits, results of current or
planned exploration activities, environmental costs and risks, changes
in the gold price, and the like. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those anticipated,
estimated or projected. The Company cautions against placing undue
reliance on forward-looking statements all of which speak only as of
the date made.
ITEM 6 (a) - Exhibit 27: Financial Data Schedule
(b) - There have been no reports on Form 8-K for the quarter
ending October 31, 1997.
Signatures
In accordance with the requirements of the Exchange Act, the regis-
trant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Heritage Mines, Ltd.
(Registrant)
By:/s/ ____________________________________
Gregory B. Sparks
President, CEO and Director
Date: December 19, 1997