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Form 10-QSB
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
COMMISSION FILE NUMBER 33-0773-A
FREMONT GOLD CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 65-0110447
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2000 - 777 Hornby Street
Vancouver, British Columbia, Canada V6Z 1S4
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (604) 682-4606
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(Former name and former address, if changed since last report)
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 [ ]
There were 6,500,333 shares of the Company's Common Stock, $.001 par value per
share, issued and outstanding at August 14, 1997. .
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FREMONT GOLD CORPORATION
INDEX
PART I FINANCIAL INFORMATION Page No.
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Item 1. Financial Statements
Consolidated Balance Sheet - June 30, 1997 4
Consolidated Statements of Operations --
Six Months ended June 30, 1997 and Six Months
ended June 30, 1996 5
Consolidated Statements of Cash Flows --
Six Months ended June 30, 1997 and Six Months
ended June 30, 1996 6
Notes to Consolidated Financial Statements 7
Item 2. Management Discussion and Analysis of Results of
Operations and Financial Condition 21
PART II OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 2. Changes in Securities 24
Item 3. Defaults Upon Senior Securities 24
Item 4. Submission of Matters to Vote of Security-Holders 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 25
SIGNATURES 26
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FREMONT GOLD CORPORATION
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
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FREMONT GOLD CORPORATION
CONSOLIDATED BALANCE SHEETS
(Expressed in U.S. Dollars)
Unaudited
June 30, 1997
---------------
ASSETS
CURRENT ASSETS:
Cash $ 453,812
Accounts receivable 8,611
Due from related parties (note 3) 42,545
Prepaid expenses 7,831
---------------
512,799
NON-CURRENT ASSETS:
Mineral properties (note 4) 1,287,125
Property and equipment, net (note 5) 151,049
Value added tax (note 6) 119,695
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TOTAL ASSETS $ 2,070,668
===============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 352,835
Due to related parties (note 7) 20,430
Promissory note payable (note 8) 4,437
Loans payable (note 9) 2,150,000
Series A Convertible Notes (note 10) 900,000
Current portion of capital lease obligations (note 14) 11,720
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3,439,422
NON-CURRENT LIABILITIES:
Capital lease obligations, less current portion (note 14) 966
MINORITY INTEREST 2,500
STOCKHOLDERS' DEFICIT
Common stock (note 11) 6,267
$.001 par value; 20,000,000 authorized;
6,267,000 issued and outstanding at June 30,1997
Additional paid-in capital 1,170,019
Unearned compensation (95,525)
Unearned equity - financing cost (18,000)
Accumulated deficit (2,434,981)
---------------
Total Stockholders' Deficit (1,372,220)
Commitments and Contingencies (notes 4, 11,14, 15 and 16)
---------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 2,070,668
===============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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FREMONT GOLD CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in U.S. Dollars)
Unaudited
For the Six Months Ended
----------------------------------
June 30, 1997 June 30, 1996
--------------- ---------------
Interest income $ 11,328 $ 52
GENERAL AND
ADMINISTRATIVE EXPENSES:
Compensation expense from stock option grants 74,256 --
Financing expense 27,000 --
Salaries and consulting 326,987 104,428
Depreciation 8,369 --
Foreign exchange (2,441) --
Legal and accounting 163,056 10,762
Rent and office expenses 125,020 342
Investor services 27,532 5,778
Travel and public relations 121,105 3,117
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859,556 124,375
Mineral property exploration 974,011 --
Less capitalized exploration costs 890,886 --
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83,125 --
Loss from operations 942,681 124,375
Interest expense 135,112 --
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Net loss $ 1,077,793 $ 124,375
=============== ===============
Weighted average number
of shares outstanding 6,104,271 1,000,000
=============== ===============
Loss per common share $ (0.18) $ (0.12)
=============== ===============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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FREMONT GOLD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in U.S. Dollars)
Unaudited
For the Six Months Ended
------------------------------
June 30, 1997 June 30, 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,077,793) $ (124,375)
Adjustments to reconcile net loss to net cash used
in operating activities:
Compensation expense from stock option grants 74,256 --
Financing expense 27,000 --
Depreciation 8,369 --
Increase (decrease) in
Accounts receivable 20,218 --
Value added taxes (119,695) --
Due from related parties (29,506) (125,087)
Accounts payable and accrued liabilities 223,997 6,947
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Net cash used in operating activities (873,154) (242,515)
CASH FLOWS FROM FINANCING ACTIVITIES:
Due to related parties (36,424) --
Promissory note (18,163) --
Forgiveness of loans -- 11,999
Loans payable 2,150,000 135,148
Series A Convertible Notes (804,000) --
Lease payments (23,691) --
Share subscriptions -- 195,000
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Net cash flow from financing activities 1,267,722 342,147
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in mineral properties (890,886) --
Investment in property and equipment (64,392) --
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Net cash used in investing activities (955,278) --
Net increase (decrease) in cash (560,710) 99,632
Cash and cash equivalents, beginning of
period 1,014,522 1,035
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Cash and cash equivalents, end of period $ 453,812 $ 100,667
============= =============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Six Months Ended June 30, 1997
1. NATURE OF OPERATIONS
The Company is a Delaware corporation and its principal business activity is the
acquisition, exploration and development of mineral properties, primarily gold
and copper properties located in Latin America.
During 1996, the Company commenced a program of exploration of certain mineral
properties, and as at June 30, 1997 had not established the existence of
economically recoverable mineral reserves. Continuing operations of the Company
and the recoverability of amounts shown for mineral properties are dependent
upon the discovery of economically recoverable reserves, the ability of the
Company to obtain financing to complete exploration and development and future
profitable operations or proceeds from the disposition thereof.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of presentation
These consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States.
The financial statements have been prepared assuming the Company will continue
as a going concern. Certain factors, discussed below, raise substantial doubt
about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
The Company has a substantial working capital deficit at June 30, 1997, due to
current debt maturities and due to the Company's short term borrowing under the
Bridge Note and Demand Notes (note 9), and does not have sufficient funds to
meet the exploration objectives as presently planned. Management recognizes that
the Company must generate additional resources to enable it to continue
operations. The Company is actively pursuing the sale of equity securities with
funds raised being made available to the Company. Management expects these
pursuits will result in additional resources to the Company, however, no
assurance can be given that the Company will be successful in raising additional
capital. Further, there can be no assurance, assuming the Company successfully
raises additional funds, that the Company will achieve profitability or positive
cash flows in the future.
If the Company is unable to obtain adequate additional financing, management
will be required to curtail the Company's exploration and mineral property
acquisition programs.
At June 30, 1997, the Company is in default on the $900,000 outstanding balance
of the Series A Notes. These Series A Note Holders may pursue remedies under
their Series A Notes, in accordance with certain terms and conditions contained
in the Series A Notes, including default interest at the rate of 16% per annum.
The Company has elected to treat the remaining Series A Notes as due and payable
upon demand and allow the Series A Holders to exercise their conversion rights
until such time as the Series A Note is paid. See note 15.
(b) Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent
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FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Six Months Ended June 30, 1997
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.
(c) Principles of consolidation
The consolidated statements include the accounts of the Company and its 100%
owned subsidiary, Flagship Holding Ltd. ("FHL"), and 99% owned subsidiary Minera
Fremont Gold Chile S.A. ("MFG"). All significant intercompany transactions and
balances have been eliminated on consolidation.
(d) Accounting treatment of Flagship Holding Ltd. acquisition
Pursuant to a Share Purchase Agreement dated July 31, 1996, with an effective
date of July 1, 1996, the Company acquired 100% of the issued and outstanding
shares of FHL it did not previously own. The Company completed this acquisition
in consideration of the exchange of 3,560,000 shares of its Common Stock.
The acquisition of FHL by the Company has been accounted for at historical cost
in a manner similar to pooling of interest accounting.
(e) Cash and cash equivalents
Cash and cash equivalents consist of highly liquid investments that are readily
convertible to known amounts of cash and generally have original maturity values
of three months or less.
(f) Mineral properties
All mineral claim acquisition costs and exploration and development expenditures
in the pre production stage relating to mineral properties, net of any
recoveries, are capitalized. General exploration expenditures which do not
relate to specific resource properties are expensed in the period incurred.
The amounts shown as deferred mineral property costs represent net costs to date
and do not necessarily represent present or future values.
On an on-going basis, the Company evaluates each property based on results to
date to determine the nature of exploration work that is warranted in the
future. If there is little prospect of further work on a property being carried
out, the deferred costs related to that property are written down to the
estimated recoverable amount.
The deferred acquisition, exploration and development costs related to a
property from which there is production will be depleted on the
unit-of-production method based upon estimated proven and probable reserves.
(g) Property and equipment
Amortization of office furniture and equipment, computer hardware and software,
leased assets and leasehold improvements is provided on a straight line basis
over a period of three years.
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FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Six Months Ended June 30, 1997
(h) Accounting for the impairment of long-lived assets
In 1996, the Company adopted Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, ("SFAS 121").
The adoption of SFAS 121 had no effect on the Company's financial statements.
(i) Foreign currency translation
The Company and its subsidiaries use the U.S. Dollar as their functional
currency. Transactions recorded in Chilean pesos, Barbados pounds and Canadian
dollars are translated as follows:
(i) Monetary assets and liabilities at the rate prevailing at the
balance sheet date.
(ii) Non-monetary assets and liabilities at historic rates.
(iii) Income and expenses at the average rate in effect during the
period.
Exchange gains or losses are recorded in the consolidated statement of
operations.
(j) Accounting for stock based compensation
The Company uses the intrinsic value based method of accounting prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" in accounting for its stock-based incentive plans.
Under the intrinsic value based method, compensation cost is the excess, if any,
of the quoted market price of the stock at the grant date over the amount an
employee or director must pay to acquire the stock.
(k) Income taxes
The Company uses the asset and liability method of accounting for income taxes.
Under the asset and liability method, deferred income taxes are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred taxes of a change in tax rates is recognized in income in the period
that includes the enactment date.
(l) Loss per share
Loss per share is computed by dividing the loss by the weighted average number
of common shares outstanding during the period.
3. DUE FROM RELATED PARTIES
Balance represents employee advances for expenditures made by employees on
behalf of the Company.
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FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Six Months Ended June 30, 1997
4. MINERAL PROPERTIES
Accumulated costs in respect to the Company's interest in mineral claims under
lease or option consist of the following:
Acquisition Balance at Additions during Written off during Balance at
and Exploration Costs Dec. 31, 1996 the period the period June 30, 1997
-------------- -------------- -------------- --------------
RESGUARDO
Acquisition $ 288,101 $ 60,000 $ -- $ 348,101
Exploration 83,138 623,691 -- 706,829
371,239 683,691 -- 1,054,930
CENIZAS
Acquisition 25,000 25,000 -- 50,000
Exploration -- 90,220 -- 90,220
25,000 115,220 -- 140,220
SANTA ELOISA
Acquisition -- 30,000 -- 30,000
Exploration -- 61,975 -- 61,975
-- 91,975 -- 91,975
Total $ 396,239 $ 890,886 $ -- $ 1,287,125
(a) Resguardo Property
On July 17, 1996, the Company entered into a 99 year Lease Agreement on the
Resguardo Property. Lease payments are as follows: $75,000 upon execution of the
Lease Agreement; $60,000 payable on each of the lease's first and second
anniversary; and $80,000 payable on the lease's third anniversary. The Company
has the exclusive right to exploit, benefit, explore, develop and smelt minerals
from the 4,765 hectare (11,774 acre) property located on the Atacama Fault
System of northern Chile. The owners retain a net smelter return production
royalty, equal to 5% on gold and 1.5% on all other mineral production from the
property, and a minimum annual royalty payment of $300,000 is payable when the
property is in production. Subsequent to the third anniversary of the lease, the
Company must complete a feasibility study and obtain project financing to begin
production on or before the seventh anniversary of the lease. No payments to the
owners are required during this period. If production financing has not been
obtained during this period, and construction of the mine has not begun by the
seventh anniversary, the Company must pay advance royalty payments of $150,000
in first year of delay; $200,000 in the second year of delay; $250,000 in the
third year of delay; and 15% annual incremental increases for subsequent delays.
The first royalty payment may be credited to the future net smelter return
production royalty.
During 1996, the Company applied for exploration claims on an additional 12,000
hectares (29,652 acres) adjacent to the leased property.
The Company paid the $60,000 payable on the first anniversary of the lease in
the second quarter of 1997, before the required date of payment.
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FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Six Months Ended June 30, 1997
(b) Cenizas
The Company signed a Letter of Intent with RTZ Mining & Exploration Limited
("RTZ") on December 13, 1996 whereby the Company can earn an initial 51%
interest in the Cenizas Property mining concessions on 6,000 hectares (14,826
acres) located on the West Fissure Fault in northern Chile, by making cash
payments totaling $350,000 and completing at least $1,000,000 of exploration
work over three years. Payments during the first year total $50,000 with a first
year exploration commitment by the Company of $200,000. The Company will also
grant to RTZ options to purchase shares of its Common Stock as follows: by June
13, 1997 an option to purchase 150,000 shares of Common Stock at a price of
$1.50 per share, by December 13, 1997 an additional option to purchase 150,000
shares of Common Stock at a price of $2.00.
Upon completion of the required payments to RTZ and satisfaction of the
Company's exploration commitments, the Company will be entitled to a 51%
interest in the Cenizas Property mining concessions. At that time, the project
will convert into a joint venture between the Company and RTZ with the Company
serving as manager of the joint venture. It is presently contemplated that at
such time, a new entity (the exact form of which has not been specified) will be
formed to hold title to the mining concessions with the Company initially owning
51% of the entity. (If either the Company or RTZ chooses not to contribute
pro-rata, their interest can be diluted to a 2% Net Smelter Royalty with a
maximum value of $3,000,000.) Within 60 days of the Company earning its 51%
interest in the Cenizas Property mining concessions, RTZ has an option to obtain
a 51% interest in the mining concessions by committing to fund and complete a
bankable feasibility study within a 30 month period.
During 1996 and first quarter of 1997, the Company applied for exploration
claims on an additional 7,500 hectares (18,533 acres) adjacent to the optioned
property.
(c) Santa Eloisa
On January 22, 1997, the Company entered into an agreement ("Santa Eloisa
Agreement") with certain mining concession owners ("Santa Eloisa Owners"). The
Santa Eloisa Owners hold approximately 4,700 hectares (11,614 acres) in the
Maricunga Gold Mining District of Northern Chile. Pursuant to the Santa Eloisa
Agreement, the Santa Eloisa Owners will cause a new Chilean corporation to be
formed, Compania Minera Santa Eloisa S.C.M. ("CMSE"), and title to all of the
mining concessions held by the Santa Eloisa Owners will be transferred to CMSE.
In return, the Santa Eloisa Owners will receive, in aggregate, 500 CMSE series A
shares and 1,500 CMSE series B shares, together representing 100% of CMSE's
equity. The Company, will receive: (i) 500 CMSE series A shares from the Santa
Eloisa Owners upon payment of $500,000 to the Santa Eloisa Owners ("Purchase
Option Payment"); $30,000 paid on January 22, 1997, $135,000 payable on April
30, 1997, $135,000 payable on November 30, 1997, $100,000 payable on March 31,
1998 and $100,000 payable on March 31, 1999, and (ii) 1,000 newly issued CMSE
series A shares upon its completion of funding a $1,000,000 exploration work
program ("Exploration Commitment") on or before March 31, 1999. Upon the
Company's payment of the Purchase Option Payment and funding its Exploration
Commitment, the Company will own 50% of the capital of CMSE in the form of
series A Shares and the Santa Eloisa Owners will own 50% of the capital of CMSE
in the form of series B shares. Thereafter, the equity interest represented by
the series B shares cannot be diluted below 25% of the total equity interest in
CMSE. The April 30, 1997 Purchase Option Payment, upon mutual agreement between
the Company and Santa Eloisa Owners, has been extended pending the formation of
a Chilean corporation and completion of definitive agreements with respect to
the share purchase rights and administrative management of the Chilean
corporation. See note 16 (a).
The Company will manage the business affairs and daily operations of CMSE and
will appoint its directors in proportion to its relative ownership percentage of
CMSE.
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FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Six Months Ended June 30, 1997
5. PROPERTY AND EQUIPMENT
Cost Accumulated Net
Depreciation
-------------- -------------- --------------
Office furniture and equipment $ 52,471 $ 6,452 $ 46,019
Computer hardware and software 24,021 4,940 19,081
Vehicle 48,288 -- 48,288
Field Equipment 203 -- 203
Leased assets 38,407 2,633 35,774
Leasehold improvements 2,165 481 1,684
Total $ 165,555 $ 14,506 $ 151,049
6. VALUE ADDED TAX
Value added tax is paid on all goods and services purchased by the Company in
Chile. This tax is recoverable when the Company, in turn, sells goods or
services, that is, when the Company produces and sells mineral products. Value
added tax is project specific and is recoverable on a particular property to the
extent that the tax has been paid in the course of exploration and development
of that property. Therefore, if a property is written down, the recoverable
value added tax associated with that property is also written down.
7. DUE TO RELATED PARTIES
On June 14, 1996, FHL borrowed $60,847 from Edward M. Topham, a director, chief
financial officer, secretary and treasurer of the Company, pursuant to a loan
agreement. The loan agreement provided for repayment upon demand with interest
accruing at 10% per annum. In consideration of this loan, Edward M. Topham was
issued 60,000 shares of FHL's common stock. On July 31, 1996, the Company
acquired 100% of FHL. On December 5, 1996, December 6, 1996, January 15, 1997
and June 19, 1997 the Company, on behalf of FHL, its wholly owned subsidiary,
paid $12,000, $12,000, $12,000 and $24,847 respectively plus $3,729.92 accrued
interest to Mr. Topham.
On April 11, 1996, Minera Fremont Gold Chile S.A. borrowed $20,430 from Roberto
Partarrieu, an employee of the Company. The loan is non-interest bearing and is
repayable upon demand. At June 30, 1997, $20,430 was outstanding.
8. PROMISSORY NOTE
On October 31, 1996, the Company entered into a Promissory Note agreement with
Laminco Resources Inc. ("Laminco") for the purchase of office and computer
equipment. The note requires that monthly payments of $2,219 be made on the
first day of each month commencing January 1, 1997 until full repayment has
occurred. If payments are made when due, no interest on the principal is
applied. If payments are not made when due, an interest charge of 1% compounded
monthly applies on the aggregate unpaid principal balance plus accrued interest.
The Company has pledged the assets purchased as additional collateral and has
agreed not to dispose of the assets until the principal has been paid.
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FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Six Months Ended June 30, 1997
9. LOANS PAYABLE
BRIDGE NOTE
On April 1, 1997, the Company borrowed $650,000 from International Freedom Ltd.,
an unaffiliated lender ("Bridge Lender") pursuant to a promissory note (the
"Bridge Note"). The Bridge Note provides for an interest rate of 12% (per annum)
and is due on July 31, 1997. The Bridge Note is secured by a pledge agreement
("Pledge Agreement"). Under the terms of the Pledge Agreement, Michael J.
Hopley, a director, president and chief executive officer of the Company, Edward
M. Topham, a director and chief financial officer of the Company and David Shaw,
a director of the Company, pledged, in aggregate, 1,088,412 shares of Common
Stock of the Company owned by them to the Bridge Lender as security for the
Bridge Note. The Company also issued the Bridge Lender a warrant to purchase
650,000 shares of the Company's Common Stock for a period of two years at a
price of $1.50 per share. In connection with this transaction, the Company
granted an unaffiliated individual a loan acquisition fee consisting of a
warrant to purchase 85,000 shares of the Company's Common Stock for a period of
two years at a price of $1.50 per share. Fair value of the warrants was
considered nominal by the Company. In consideration of pledging their Common
Stock as security to facilitate this loan, the Company has agreed to issue
Messrs. Hopley, Topham and Shaw an aggregate of 75,000 shares of the Company's
Common Stock.
At June 30, 1997, $650,000 of principal remains outstanding on the Bridge Note,
and $14,351 of accrued interest has been recorded in current accounts payable.
See note 15.
DEMAND NOTES
On June 13, 1997, the Company borrowed an aggregate of $1,500,000 from Robertson
Stephens Orphan Fund ($1,245,000) and Robertson Stephens Offshore Orphan Fund
($255,000) (together "Demand Lenders"), pursuant to the two Demand Notes. The
Demand Notes provide for an interest rate of 10.5% (per annum) and are due upon
demand by the Demand Lenders. The Demand Notes are unsecured and represent
advances to the Company until the Demand Lenders convert their Series A Notes
and are able to exercise the Warrants received upon such conversion. In
consideration of this loan, the Company also issued the Demand Lenders warrants
to purchase an aggregate of 250,000 shares of the Company's Common Stock for a
period of two years at a price of $2.00 per share. The Demand Lenders also
received certain registration rights in connection with shares of Common Stock
underlying these warrants. Fair value of the warrants was considered nominal by
the Company. See note 15.
At June 30, 1997, $1,500,000 in principal remains outstanding on the Demand
Note, and $7,336 of accrued interest has been recorded in current accounts
payable.
10. SERIES A CONVERTIBLE NOTES
On August 21, 1996, the Company commenced an offering of $1,800,000 principal
amount of Series A Notes. In December 1996, the Company completed the offering
of Series A Notes and accepted subscriptions aggregating $1,800,000. Each Series
A Note is convertible, at the option of each of the holders (each a "Series A
Note Holder"), into Units at any time after the issue date and prior to the
close of business on the maturity date at the rate of $.50 of principal per
Unit. Each Unit is composed of one share of common stock ("Common Stock") and
one warrant ("Warrant"). Each Warrant is exercisable to purchase one share of
Common Stock at the greater of $1.50 or 75% of the ten day average closing
prices, as quoted on the OTC-BB, immediately preceding the notice of exercise.
The Warrants are redeemable by the Company at any time after issuance, upon 15
days written notice to the Warrant holders, at a redemption price of $0.10 per
Warrant. The Series A Note Holders, if any, issued Units upon conversion without
an effective Registration Statement under the Securities Act of 1933, as amended
("Act"), shall have the right, at any time, to join with the Company to register
the shares of Common Stock
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FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Six Months Ended June 30, 1997
included in the Units and underlying the Warrants in any Registration Statement
under the Act filed by the Company. Each purchaser of the Series A Notes has
entered into a Voluntary Stock Pooling Agreement ("Pooling Agreement"). Under
the terms of the Pooling Agreement each recipient of Units issued pursuant to
conversion of the Series A Notes has agreed with the Company, the Trustee (as
defined in the Pooling Agreement) and each with the other, that they will
deliver the certificates representing their shares of Common Stock included in
the Units to the Trustee. However, the Shares issuable upon exercise of the
Warrants will not be subject to the Pooling Agreement. Pursuant to the Pooling
Agreement the Trustee shall hold all delivered Shares subject to release, on a
pro-rata basis, as set forth below:
PRO-RATA SHARES OF COMMON STOCK RELEASE DATE
25% of Common Stock purchased April, 1, 1997 (1)
25% of Common Stock purchased July 1, 1997 (2)
25% of Common Stock purchased October 1, 1997
the balance of Common Stock purchased January 1, 1998
(1) Upon any conversion of the Series A Notes between April 1, 1997 and July
1, 1997, the first 25% of the shares issued upon such conversion will be
immediately released.
(2) Upon conversion of the Series A Notes after July 1, 1997, the first 50%
of the shares issed upon such conversion will be released.
On February 27, 1997, the Company extended the expiration date of the Warrants
to be included in the Units from April 15, 1997 to September 30, 1997. The
Company requested that the Series A Note Holders extend the Maturity Date of the
Series A Notes from March 1, 1997 to June 30, 1997. The Series A Note Holders
may now demand payment of principal and interest at any time.
On June 17, 1997, the Company, in accordance with the provisions of the Series A
Note, prepaid $834,000 principal amount of the outstanding balance of the Series
A Notes. The aggregate principal balance remaining after this prepayment was
$966,000.
As of June 30, 1997, Series A Note Holders representing $66,000 principal amount
of the outstanding balance of the Series A Notes had exercised their conversion
rights. At June 30, 1997, the Company is in default on the remaining $900,000
principal amount and $47,684 in accrued interest payable on the Series A Notes.
These Series A Note Holders may pursue remedies under their Series A Notes, in
accordance with certain terms and conditions contained in the Series A Notes,
including default interest at the rate of 16% per annum. The Company has elected
to treat the remaining Series A Notes as due and payable upon demand and allow
the Series A Holders to exercise their conversion rights until such time as the
Series A Note is paid. See note 15.
11. SHARE CAPITAL
On April 15, 1996, the Board of Directors of the Company and holders of a
majority of the outstanding Common Stock of the Company authorized the Company,
by written consent, to take a series of actions related to its authorized and
outstanding Common Stock. These actions included a one-for-twenty (1-for-20)
reverse stock split of the Company's Common Stock, pursuant to which each twenty
(20) shares of the Company's Common Stock outstanding immediately prior to April
30, 1996 was converted into one (1) share of the Company's Common Stock.
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15
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Six Months Ended June 30, 1997
In connection with the reverse split the Company maintained the par value of its
Common Stock at $0.001 par value per share, and the total number of shares of
Common Stock authorized to be issued by the Company remained unchanged at
20,000,000 shares. The number of issued and outstanding shares of the Company's
Common Stock after the reverse split was 1,000,000 shares. All references to
shares of Common Stock have been retroactively adjusted to reflect this reverse
split.
In May 1996, the Company's Board of Directors approved a private placement of
1,000,000 shares of Common Stock at an offering price of $0.20 aggregating
$200,000 to the Company. This private placement was closed on July 30, 1996.
On July 31, 1996, the Board of Directors of the Company and holders of a
majority of the outstanding shares of the common stock of the Company,
authorized the Company, by written consent, to acquire 100% of FHL stock not
previously owned by the Company. The Company completed this acquisition in
consideration for the exchange of 3,560,000 shares of its Common Stock. Michael
J. Hopley, a director, president and chief executive officer of the Company,
David Shaw, a director of the Company and Edward M. Topham, chief financial
officer of the Company, received 418,000, 372,000, and 381,000 shares,
respectively, of the Company's Common Stock in the exchange.
On August 1, 1996, the Company completed a private placement of 500,000 shares
of its Common Stock to Laminco in consideration of $140,000.
On April 1, 1997, the Company issued an aggregate of 75,000 shares to Michael J.
Hopley, a director, president and chief executive officer of the Company, Edward
M. Topham, a director and chief financial officer of the Company, and David
Shaw, a director of the Company, in connection with the Pledge Agreement under
the terms of the Bridge Note (note 9).
As of June 30, 1997, Series A Note Holders representing $66,000 principal amount
of the outstanding balance of the Series A Notes had exercised their conversion
rights. As a result of these conversions, 132,000 shares of the Company's Common
Stock are issuable.
WARRANTS
On June 4, 1996 and June 20, 1996, Laminco, then an affiliate of the Company,
advanced loans to the Company. In consideration of these loans the Company
granted Laminco warrants to purchase 400,000 shares of the Company's Common
Stock at a purchase price of $1.00 for a period of two years. Fair value of the
warrants was considered nominal by the Company. In addition, the Company granted
Laminco certain rights to participate in all future financing completed by the
Company on the same terms offered third parties. Prior to year end the balance
of the loans was repaid.
On April 1, 1997, the Company issued the Bridge Lender (note 9) a warrant to
purchase 650,000 shares of the Company's Common Stock for a period of two years
at a price of $1.50 per share. Fair vale of the warrants was considered nominal
by the Company.
On April 1, 1997, the Company issued an unaffiliated individual a warrant to
purchase 85,000 shares of the Company's Common Stock for a period of two years
at a price of $1.50 per share (note 9). Fair value of the warrant was considered
nominal by the Company.
On June 13, 1997, the Company issued the Demand Lenders (note 9) warrants to
purchase of 250,000 shares of the Company's Common Stock for a period of two
years at a price of $2.00 per share. Fair value of the warrants was considered
nominal by the Company.
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16
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Six Months Ended June 30, 1997
As of June 13, 1997, under the agreement the Company has with RTZ (note 4(b)),
RTZ has an option to purchase 150,000 shares of the Company's Common Stock for a
period of two years at a price of $1.50 per share. Fair value of the warrants
was considered nominal by the Company.
As of June 30, 1997, Warrants to purchase 132,000 shares of the Company's Common
Stock are outstanding. These Warrants were issued in connection with the
exercise of conversion rights of Series A Notes. These warrants are exercisable
at the greater of $1.50 or 75% of the ten day average closing prices, as quoted
on the OTC-BB, immediately preceding the notice of exercise (note 10).
STOCK OPTIONS
The Company's stockholders have adopted the 1996 Incentive Stock Plan (the
"Plan") which allows the Board of Directors to provide the Company's key
employees with incentive compensation commensurate with their positions and
responsibilities. The Plan permits the grant of incentive equity awards covering
up to 1,000,000 shares of Common Stock and will be administered by the
Compensation Committee of the Board of Directors (the "Committee"), two or more
members of which will be independent directors. The Plan provides for the grant
of non-qualified stock options and incentive stock options (collectively, the
"Incentive Awards"). Key employees of the Company and its subsidiaries,
including officers who are not also members of the Board of Directors, will be
eligible to participate in the Plan.
The Board of Directors may at any time amend the Plan in any respect; provided,
that, without the approval of the Company's shareholders, no amendment may (i)
increase the number of shares of Common Stock that may be issued under the Plan,
(ii) materially increase the benefits accruing to individuals holding Incentive
Awards, or (iii) materially modify the requirements as to eligibility for
participation in the Plan.
Changes in stock options for the six months ended June 30, 1997 are shown in the
following table:
Exercise Price Weighted Avg
Share Options Per Share Exercise Price
- -------------------------------------------------------------------------------------------------
Outstanding at Dec. 31, 1996 780,000 $ 1.17 to 1.28 $ 1.23
Granted during the period 170,000 $ 1.17 $ 1.17
- -------------------------------------------------------------------------------------------------
Outstanding at June 30, 1997 950,000 $ 1.17 to 1.28 $ 1.22
Exercisable at June 30, 1997 455,000 $ 1.17 to 1.28 $ 1.23
- -------------------------------------------------------------------------------------------------
Expiry dates for options granted range from September 27, 2001 to January 10,
2002.
The Company applies APB Opinion No. 25 and related interpretations in accounting
for its option plan. Accordingly, compensation costs based on the difference
between the quoted market value of the stock price at the grant date and the
option exercise price has been recognized and will be amortized over the vesting
period. Had compensation cost for the Company's stock option plan been
determined based on the fair value at the grant dates, consistent with the
method of Statement of Financial Accounting Standards No. 123, "Accounting for
Stock Based Compensation", the Company's net loss and loss per share for the six
months ended June 30, 1997 would have been increased to the pro forma amounts as
follows:
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FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Six Months Ended June 30, 1997
Net loss
As reported $ 1,077,793
Pro forma $ 1,144,031
Net loss per common share
As reported $ (0.18)
Pro forma $ (0.19)
The estimated weighted average fair value of options granted during the six
months ended June 30, 1997, was $0.66 assuming a risk free rate of 7%, an
expected volatility of 42% and a weighted average expected life of 2 years. The
estimate was made using the Black-Scholes Option Pricing Model. The weighted
average remaining contractual life of options outstanding at June 30, 1997 was
4.4 years.
12. INCOME TAXES
At December 31, 1996, the Company had net operating loss carry forwards for
federal income tax purposes of approximately $862,122. Operating losses of
$405,771 accumulated to December 31, 1995 are no longer available for carry
forward due to the change in the nature of the Company's business operations
that occurred in 1996.
No deferred tax benefit has been recorded due to the uncertainty of the Company
realizing these benefits through profitable operations in the future.
13. SEGMENTED INFORMATION
- ----------------------------------------------------------------------------------------------------
1997 1996
- ----------------------------------------------------------------------------------------------------
Loss for the six Identifiable Loss for the six Identifiable
months ended Assets months ended Assets
June 30, 1997 June 30, 1996
- ----------------------------------------------------------------------------------------------------
Canada $ 856,130 $ 435,684 $ 124,375 $ 225,754
Barbados 5,517 1,603 -- --
Chile 216,146 1,633,381 -- --
- ----------------------------------------------------------------------------------------------------
Consolidated $1,077,793 $2,070,668 $ 124,375 $ 225,754
====================================================================================================
14. COMMITMENTS AND CONTINGENCIES
The Company is committed under an operating lease to pay for office space in
Vancouver, British Columbia, Canada. The lease is for a term of five years
commencing on the 1st day of August, 1996 and ending on the 30th day of July
2001. The minimum lease payments for the next five years are as follows:
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FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Six Months Ended June 30, 1997
YEAR Amount
- ---- --------
1997 $ 20,174
1998 20,174
1999 20,174
2000 20,174
2001 11,768
----------
Total $ 92,464
==========
The Company leases vehicles under agreements which are classified as capital
leases. Leased capital assets included in Property and equipment at June 30,
1997 are as follows:
- --------------------------------------------------------------------------------
Leased Vehicles $ 38,407
Less: Accumulated Depreciation 2,633
- --------------------------------------------------------------------------------
Total $ 35,774
================================================================================
Following is a summary of future minimum payments under capitalized leases that
have initial or remaining noncancelable lease terms in excess of one year at
June 30, 1997:
- --------------------------------------------------------------------------------
Year ending June 30,
1998 $ 11,720
1999 2,884
- --------------------------------------------------------------------------------
Total minimum lease payments 14,604
Less: interest 1,918
- --------------------------------------------------------------------------------
Present value of minimum lease payments 12,686
Current portion 11,720
Long term obligation $ 966
================================================================================
15. SUBSEQUENT EVENTS - SERIES A NOTES CONVERSIONS AND EXERCISE OF WARRANTS
On July 7, 1997, the Bridge Lender exercised warrants to purchase 233,333 shares
of the Company's Common Stock in consideration of a $350,000 reduction in the
principal amount of the Bridge Note.
As of August 12, 1997, Series A Note Holders representing $390,000 principal
amount of the outstanding balance of the Series A Notes had exercised their
conversion rights. As a result of these conversions, 780,000 shares of the
Company's Common Stock are issuable and Warrants to purchase 780,000 shares of
the Company's Common Stock are outstanding.
As of August 12, 1997, the Demand Lenders exercised their conversion rights
pursuant to two Series A Notes in the aggregate original principal amount of
$500,000. Upon conversion of the two Series A Notes, the Demand Lenders were
issued an aggregate of 1,000,000 Units comprised of 1,000,000 shares of the
Company's Common Stock and 1,000,000 Warrants. On August 12, 1997, the Demand
Lenders exercised all of the Warrants and purchased 1,000,000 shares of the
Company's Common Stock in consideration of cancellation of the Company's
$1,500,000 obligation under the Demand Notes.
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19
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Six Months Ended June 30, 1997
The Company is in default on the remaining $10,000 principal amount and on the
interest accrued on the Series A Notes.
The table set forth below summarizes the Company's balance sheet given the
effect of the above transactions.
Pro Forma Summary Balance Sheet
Assets
- ------
Current assets $ 512,799
Non-current assets 1,557,869
-----------
Total Assets $ 2,070,668
===========
Liabilities and Stockholder's Deficit
- -------------------------------------
Current liabilities $ 699,422
Non-current liabilities and minority interest 3,466
Capital 3,916,286
Unearned equity (113,525)
Accumulated deficit (2,434,981)
-----------
Total Liabilities and Stockholder's Deficit $ 2,070,668
===========
16. OTHER SUBSEQUENT EVENTS
(a) On July 3, 1997 the corporation, Compania Minera Santa Eloisa, was formed
and on July 7, 1997, the second instalment of the Purchase Option Payment was
made to the Santa Eloisa Owners (see note 4(c)). Upon mutual agreement between
the Company and the Santa Eloisa Owners, the payment was made with $100,000 in
cash and 23,333 shares of the Company's common stock.
(b) On July 23, 1997 the Company signed a Letter of Intent which defines the
terms by which the Company can acquire a 100% interest in the Laja property, an
area of 250 hectares (618 acres), located in the historic gold mining district
of Andacollo, northern Chile. The terms of the Letter of Intent allow Fremont to
earn a 100% interest in the Laja property by completing a bankable feasibility
study within three years and paying the owners a total of $4,000,000 as follows:
$50,000 payable upon signing the final contract to be completed within sixty
days of signing the Letter of Intent, $150,000 payable during the first year of
the option with semi annual payments then due over the next two years of the
agreement and a final payment of $2,000,000 payable on the third anniversary of
the option. In addition, the operators of the Laja property will be paid a total
of $446,000 in cash and the equivalent of $466,000 in the Company's common
shares over a two year period for the existing mine facilities
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20
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Six Months Ended June 30, 1997
and infrastructure. The owners retain a royalty that is calculated on a sliding
scale based on the price of gold using 0.01 per cent per US$1.00 price per ounce
of gold.
(c) On July 25, 1997, the Company borrowed an aggregate of $100,000 from
Regional Investments, Inc. (the Lender) pursuant to an unsecured Demand Note.
The Demand Note provides for an interest rate of 10.5% (per annum) and is due
upon demand by the Lender.
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21
FREMONT GOLD CORPORATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION, RESULTS
OF OPERATIONS AND PLAN OF OPERATION
The analysis of Fremont Gold Corporation (the "Company") financial
condition, liquidity and capital resources, and results of operations should be
viewed in conjunction with the accompanying financial statements, including the
notes thereto.
FINANCIAL CONDITION
At June 30, 1997, the Company had current assets of $512,799, as
compared to current assets of $1,094,221 at December 31, 1996. The $581,422
decrease at June 30, 1997, reflects a $560,710 decrease in cash and a decrease
in accounts receivable of $20,712. At June 30, 1997, the Company had current
liabilities of $3,439,422 as compared to current liabilities of $2,033,124 at
December 31, 1996. The increase at June 30, 1997 is comprised of a $223,998
increase in accounts payable and accrued liabilities, and a $650,000 Bridge Note
and $1,500,000 Demand Notes, offset by a $900,000 reduction in the Series A
Convertible Notes payable balance and a $67,700 reduction in the amounts due to
related parties, the promissory note payable and the current portion of capital
lease obligations collectively.
At June 30, 1997 the Company has a net worth of ($1,372,220), as
compared to a net worth of ($461,682) at December 31, 1996. The decrease in net
worth is a result of on going costs associated with the exploration,
administration and management of the Company's mineral properties.
On July 7, 1997 the Bridge Lender exercised warrants to purchase 233,333
shares of the Company's Common Stock in consideration of a $350,000 reduction in
the principal amount of the Bridge Note. As of August 12, 1997, Series A Note
Holders representing $890,000 principal amount of the outstanding balance of the
Series A Notes had exercised their conversion rights resulting in 1,780,000
Units being issuable by the Company. On August 12, 1997 the Demand Lender
exercised 1,000,000 Warrants underlying its Units and purchased 1,000,000 shares
of the Company's Common Stock in consideration of cancellation of the Company's
$1,500,000 obligation under the Demand Notes.
Given effect to the above described subsequent events, the Company has
current assets of $512,799, current liabilities of $699,422 and a net worth of
$1,367,780.
RESULTS OF OPERATIONS
The Company had a loss during the six months ended June 30, 1997, of
$1,077,793 or $0.18 per share. For the six months ended June 30, 1996 the
Company's loss was $124,375 or $0.12 per share.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 1997, the Company's working capital
deficiency increased to $2,926,623. The increase is due largely to the decrease
in cash of $560,710 and the increase in accounts payable accrued liabilities of
$223,998, and the new current obligations under the Bridge Note ($650,000) and
the Demand Notes ($1,500,000). The proceeds from the Bridge Note and the Demand
Notes were used in the Company's exploration programs.
The Company filed Amendment No. 2 to a Registration Statement on Form
SB-2 with the Securities and Exchange Commission ("SEC") on July 16, 1997. On
August 1, 1997, the Registration Statement was declared effective by the SEC. As
of August 12, 1997, Series A Note Holders representing $890,000 principal amount
of the outstanding balance of the Series A Notes had exercised their conversion
rights. As a result of these
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22
conversions, 1,780,000 Units are issuable by the Company. If all of the Warrants
underlying the Units received by the Series A Note Holders upon conversion are
exercised, the Company will receive minimum net proceeds of $1,449,000.
PLAN OF OPERATION
The Company is, and plans to continue to be, engaged in the acquisition,
exploration and, if warranted, development of mineral properties, primarily gold
and copper properties located in Latin America. Currently, the Company is only
involved in the exploration for minerals and does not have an interest in any
operating mines. The Company's near term operational plan is to complete
exploration on its principal mineral property interests and to pursue the
identification and acquisition of additional mineral properties. The Company has
implemented an aggressive plan to assess new opportunities for the acquisition
of additional mineral properties with an economic potential.
During 1997, the Company will be required to pay $485,000 in lease and
purchase option payments in connection with its Resguardo, Cenizas, Santa Eloisa
and Laja properties of which $150,000 has been paid as of June 30, 1997. In
addition, the Company is required to expend $200,000, $300,000 and $500,000 in
conducting exploration on its Cenizas Property during 1997, 1998 and 1999,
respectively, and $1,000,000 in conducting exploration on its Santa Eloisa
Property before March 31, 1999.
The Company also intends to expend significant additional funds on i)
exploration in excess of contractual commitments, ii) identification and
acquisition of additional mineral properties and iii) general and administrative
costs associated with the implementation of its operational plan. The Company
has the ability to exercise control over the amount and timing of a significant
portion of these additional costs.
The Company has experienced operating losses since inception, resulting
in an accumulated deficit position. These operating losses are a result of the
Company's i) expansion of its administrative staff and technical staff to fully
support the Company's exploration and property acquisition activities, ii)
exploration expenditures on the Company's existing properties, and iii) costs
associated with the Company's mineral property acquisition program. The
Company's financial position and operating results raise substantial doubt about
its ability to continue as a going concern. Management's plans in regard to
these matters are discussed below.
The proceeds from the Series A Notes, the Bridge Note, the Demand Notes,
and the anticipated proceeds from the Warrants, if exercised, will satisfy the
Company's cash requirements until November 30, 1997. The Company may extend this
date through reducing its current exploration budget and acquisition activities.
To the extent the additional financial resources discussed below are not
available to the Company, the Company may be required to substantially reduce or
eliminate its exploration and or acquisition activities.
The Company currently anticipates that it will sell additional
securities at a price sufficient to raise approximately $6 million to $10
million, either pursuant to registration or an exemption from registration under
the Act within the next 12 months, however, there can be no assurance that the
Company will be successful in completing such sales. If the Company is
successful in obtaining proceeds from a significant number of Warrant exercises
and it is successful in selling additional securities, the Company likely will
expand its property acquisition program and accelerate exploration work on its
current properties.
The Company's financial statements have been prepared assuming the
Company will continue as a going concern. Certain factors, discussed below and
in the financial statements (and notes thereto), raise substantial doubt about
the Company's ability to continue as a going concern. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
The Company has a substantial capital deficit at June 30, 1997 due to
current debt maturities and due to the Company's short term borrowing under the
Bridge Note and Demand Notes. Subsequent to June 30, 1997, the Company repaid
$350,000 under the Bridge Note and $1,500,000 under the Demand Notes in
connection with
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23
the exercise of warrants to purchase 1,233,333 shares of the Company's Common
Stock. Given effect of the subsequent issuance of the Company's Common Stock the
Company has a net worth of $ 1,367,780. The Company does not currently have
sufficient funds to meet the exploration objectives presently planned.
Management recognizes that the Company must generate additional resources to
enable it to continue operations. The Company is actively pursuing the sale of
equity securities with funds raised being made available to the Company.
Management expects these pursuits will result in additional resources to the
Company, however, no assurance can be given that the Company will be successful
in raising additional capital. If the Company is unable to raise additional
capital, on terms acceptable to the Company, the Company may be required to i)
cease its current mineral property acquisition program, ii) suspend or reduce
its exploration programs on one or more of its current mineral properties, iii)
enter into joint venture arrangements with third parties for the exploration of
its mineral properties, which will result in a reduction in the Company's
ownership interest in such mineral properties and/or iv) terminate its existing
purchase option or lease agreements and forfeit its interest in one or more of
its current mineral properties. Further, there can be no assurance, assuming the
Company successfully raises additional funds, that the Company will achieve
profitability or positive cash flow in the future.
During the next 12 months the Company will focus its human and financial
resources on i) exploration of its existing properties, ii) identification and
acquisition of additional mineral properties and iii) exploration of mineral
properties subsequently acquired. The Company does not anticipate any
significant purchases or sales of plants or equipment during the next twelve
months.
Currently, the Company has 18 full time employees. The Company also has
two full time and several part time geological consultants. To the extent the
Company is successful in acquiring additional mineral properties, it may hire
one or more employees or consultants on a full time basis in the technical
field.
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FREMONT GOLD CORPORATION
PART II - OTHER INFORMATION
Item 1 - Legal Proceeding
There are no material pending legal proceedings to which
the Company is or is likely to be a party or of which
any of its subsidiaries or properties are likely to be
the subject.
Item 2 - Changes In Securities
Not applicable
Item 3 - Defaults Upon Senior Securities
At June 30, 1997, the Company is in default on the
remaining $900,000 principal amount of the outstanding
balance of the Series A Notes and on the related $47,684
in accrued interest. These Series A Note Holders may
pursue remedies under their Series A Notes, in
accordance with certain terms and conditions contained
in the Series A Notes, including default interest at the
rate of 16% per annum. The Company has elected to treat
the remaining Series A Notes as due and payable upon
demand and allow the Series A Holders to exercise their
conversion rights until such time as the Series A Note
is paid.
On July 7, 1997, the Bridge Lender exercised warrants to
purchase 233,333 shares of the Company's Common Stock in
consideration of a $350,000 reduction in the principal
amount of the Bridge Note. At July 31, 1997, the Company
is in default on the remaining $300,000 principal amount
of the Bridge Note.
As of August 12, 1997, Series A Note Holders
representing $890,000 principal amount of the
outstanding balance of the Series A Notes had exercised
their conversion rights. The Company is in default on
the remaining $10,000 principal amount and on the
interest accrued on the Series A Notes.
Item 4 - Submission Of Matters To A Vote Of Security-Holders
Not applicable
Item 5 - Other Information
Not applicable
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25
Item 6 - Exhibits And Reports On Form 8-K
a) Exhibit table
Exhibit Number Description of Exhibit Reference
- ------------------- ----------------------------------------------------------- ---------
4.5.1 $650,000 Promissory Note, dated April 1, 1997 issued by (1)
Company in favor of International Freedom Ltd.
4.5.2 Warrant to purchase 650,000 shares of Common
Stock, dated April 1, 1997, issued to (1)
International Freedom Ltd.
4.6.1 Form of Demand Note (1)
4.6.2 Form of Warrant issued with Demand Notes (1)
10.10 Pledge Agreement dated April 1, 1997 by and between Messrs. (1)
Hopley, Shaw and Topham
(1) Filed with Amendment No. 2 to Form SB-2 Registration No. 333-21665,
dated July 16, 1997.
b) Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Commission Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
FREMONT GOLD CORPORATION
DATE: AUGUST 14, 1997
By:/S/ Michael J. Hopley
-------------------------------------
Michael J. Hopley, President
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