1
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 September 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 12,187,605 shares of the Company's Common Stock, $.001 par value per
share, issued and outstanding at November 7, 1997.
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FREMONT GOLD CORPORATION
INDEX
PART I FINANCIAL INFORMATION Page No.
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Item 1. Financial Statements 3
Consolidated Balance Sheet - September 30, 1997 4
Consolidated Statements of Operations --
Nine Months ended September 30, 1997 and Nine Months
ended September 30, 1996 5
Consolidated Statements of Cash Flows --
Nine Months ended September 30, 1997 and Nine Months
ended September 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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3
FREMONT GOLD CORPORATION
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
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4
FREMONT GOLD CORPORATION
CONSOLIDATED BALANCE SHEETS
(Expressed in U.S. Dollars)
Unaudited
------------------
September 30, 1997
------------------
ASSETS
CURRENT ASSETS:
Cash $ 7,984
Accounts receivable 11,775
Due from related parties (note 3) 17,031
Prepaid expenses 12,694
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49,484
NON-CURRENT ASSETS:
Mineral properties (note 4) 1,693,697
Property and equipment, net (note 5) 147,315
Value added tax (note 6) 159,211
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TOTAL ASSETS $ 2,049,707
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LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 596,652
Due to related parties (note 7) 20,472
Promissory note payable (note 8) 4,472
Loans payable (note 9) 50,000
Current portion of capital lease obligations (note 14) 2,185
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673,781
MINORITY INTEREST 2,500
STOCKHOLDERS' DEFICIT 11,733
Common stock (note 11)
$.001 par value; 20,000,000 authorized;
11,733,060 issued and outstanding at September 30,1997
Additional paid in capital 4,306,928
Unearned compensation (46,700)
Accumulated deficit (2,898,535)
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Total Stockholders' Deficit 1,373,426
Commitments and Contingencies (notes 4, 11, 14 and 15)
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TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 2,049,707
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SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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5
FREMONT GOLD CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in U.S. Dollars)
Unaudited
---------------------------------------
For the Nine Months Ended
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September 30, 1997 September 30, 1996
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Interest income $ 11,315 $ 2,152
GENERAL AND
ADMINISTRATIVE EXPENSES:
Compensation expense from stock option grants 127,456 --
Financing expense 45,000 --
Salaries and consulting 486,774 157,760
Depreciation 12,791 308
Foreign exchange (3,372) 8,267
Legal and accounting 215,239 45,344
Rent and office expenses 174,384 42,104
Investor services 71,111 9,359
Travel and public relations 159,911 23,059
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1,277,979 284,049
Mineral property exploration 1,776,364 --
Less capitalized exploration costs (1,693,697) --
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82,667 --
Loss from operations 1,360,646 284,049
Interest expense 180,701 --
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Net loss $ 1,541,347 $ 284,049
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Weighted average number
of shares outstanding 6,639,365 2,534,872
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Loss per common share $ (0.23) $ (.11)
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SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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6
FREMONT GOLD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in U.S. Dollars)
Unaudited
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For the Nine Months Ended
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September 30, 1997 September 30, 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,541,347) $ (284,049)
Adjustments to reconcile net loss to net cash
used in operating activities:
Compensation expense from stock option grants 127,456 --
Financing expense 45,000 --
Depreciation 12,791 308
Increase (decrease) in: Accounts receivable 17,054 (17,626)
Value added taxes (159,211) --
Due from related parties (3,992) --
Prepaid expenses (4,863) --
Accounts payable and
accrued liabilities 467,813 38,171
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Net cash used in operating activities (1,039,299) (263,196)
CASH FLOWS FROM FINANCING ACTIVITIES:
Due to related parties (36,382) 322,635
Promissory note (18,128) --
Forgiveness of loans -- 12,000
Loans payable 50,000 (5,000)
Series A Convertible Notes (1,770,000) 740,000
Lease payments (34,192) --
Share subscriptions 3,204,000 340,000
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Net cash flow from financing activities 1,395,298 1,409,635
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Flagship Holding Ltd. -- 26,886
Minority Interest -- 2,500
Investment in mineral properties (1,297,458) (413,594)
Investment in property and equipment (65,079) (11,033)
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Net cash used in investing activities (1,362,537) (395,241)
Net increase (decrease) in cash (1,006,538) 751,198
Cash and cash equivalents, beginning of period 1,014,522 1,035
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Cash and cash equivalents, end of period $ 7,984 $ 752,233
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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 Nine Months Ended September 30, 1997
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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 September 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 working capital deficit at September 30, 1997, due to
accumulated current accounts payable and accrued liabilities, 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 i) the sale
of equity securities, ii) joint venture arrangements with third parties for the
exploration of one or more of its properties and iii) the sale of one or more of
its properties. The funds raised through a sale of equity securities and/or
properties would be made available to the Company. In addition, to the extent
the Company is successful in securing a joint venture partner(s) on one or more
of its properties, it will reduce the required financial resources of the
Company.
To date the Company has been unable to raise additional financial resources
through the sale of equity securities or any of its properties. In addition, the
Company has been unable to secure a joint venture partner(s) on any of its
properties. As a result, the Company has taken significant actions to reduce the
financial resources required by the Company's operations. The actions taken by
the Company include i) the discontinuance of all property acquisition
activities, ii) the suspension of all exploration programs, iii) a substantial
reduction in administration and geological field support personnel, iv) deferral
of payment of all salaries to executive and senior management of the Company and
v) significant reductions in general and administrative expenditures.
Although the Company is actively pursuing the financial resources it requires,
no assurances can be given that the Company will be successful in raising
additional capital. If the Company is unable to obtain adequate additional
financing, the Company will be unable to meet it's financial obligations with
respect to the purchase options on one or more of its properties, resulting in
loss of the property(s) and all exploration expenditures made to date.
At September 30, 1997, the Company is in default on $50,000 principal balance
and $30,085 in accrued interest payable on the Bridge Note. See Notes 9, 10 and
15.
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8
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Nine Months Ended September 30, 1997
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(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 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 Nine Months Ended September 30, 1997
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(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 Nine Months Ended September 30, 1997
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4. MINERAL PROPERTIES
Accumulated costs in respect to the Company's interest in mineral claims under
lease or option consist of the following:
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Acquisition Balance at Additions during Written off during Balance at
and Exploration Costs Dec 31, 1996 The period the period Sept 30, 1997
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RESGUARDO
Acquisition $ 288,101 $ 60,000 $ -- $ 348,101
Exploration 83,138 872,160 -- 955,298
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371,239 932,160 -- 1,303,399
CENIZAS
Acquisition 25,000 25,000 -- 50,000
Exploration -- 137,320 -- 137,320
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25,000 162,320 -- 187,320
SANTA ELOISA
Acquisition -- 130,000 -- 130,000
Exploration -- 70,799 -- 70,799
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-- 200,799 -- 200,799
LAJA
Acquisition -- 2,179 -- 2,179
Exploration -- -- -- --
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-- 2,179 -- 2,179
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Total $ 396,239 $1,297,458 $ -- $1,693,697
=================================================================================================
(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.
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FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Nine Months Ended September 30, 1997
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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.
(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.
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FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Nine Months Ended September 30, 1997
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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.
On July 3, 1997 the corporation, Compania Minera Santa Eloisa, was formed and on
July 7, 1997, the second installment of the Purchase Option Payment was made to
the Santa Eloisa Owners. 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.
(d) Laja
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 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.
As of September 30, 1997, the company was negotiating an extension to the sixty
day period in which the final contract was to be completed. See note 15.
5. PROPERTY AND EQUIPMENT
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Cost Accumulated Net
Depreciation
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Office furniture and equipment $ 53,160 $ 8,673 $ 44,487
Computer hardware and software 24,021 6,961 17,060
Vehicle 48,288 -- 48,288
Field Equipment 203 -- 203
Leased assets 38,407 2,633 35,774
Leasehold improvements 2,165 662 1,503
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Total $166,244 $ 18,929 $147,315
=====================================================================
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FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Nine Months Ended September 30, 1997
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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. If a mineral 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 September 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 $2,236 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.
At September 30, 1997, $4,472 of principal remains outstanding on the Promissory
Note.
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
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14
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Nine Months Ended September 30, 1997
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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.
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.
On July 31, 1997 the Bridge Note became due and payable. In a loan extension
agreement between the Company and the Bridge Lender, the Company has agreed to
pay default interest at the rate of 20.6% per annum on the principal balance
outstanding after July 31, 1997.
On September 30, 1997, the Company repaid $250,000 of the outstanding principal
balance of the Bridge Note.
At September 30, 1997, $50,000 of principal remains outstanding on the Bridge
Note, and $30,085 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.
On September 29, 1997, the Demand Lenders subscribed to and purchased an
aggregate of 2,727,273 shares of the Company's Common Stock at a price of $.55
per share. The Company used the proceeds to repay $1,500,000 of the outstanding
principal balance of the Demand Notes.
At September 30, 1997, $46,603 in interest remains outstanding on the Demand
Note and has been recorded in current accounts payable.
DEMAND LOAN
On July 25, 1997, the Company borrowed an aggregate of $100,000 from Regional
Investments, Inc. (the "Lender") pursuant to an unsecured demand note ("Regional
Notes"). The Regional Notes provide for an interest rate of 10.5% (per annum)
and is due upon demand by the Lender.
On August 29, 1997, the Company borrowed a further $38,000 from Regional
Investments, Inc. under the same terms and conditions of the July 25, 1997
unsecured Regional Notes.
On September 29, 1997, the Lender subscribed to and purchased an aggregate of
250,909 shares of the Company's Common Stock at a price of $.55 per share. The
Company used the proceeds to repay $138,000 of the outstanding principal balance
of the Regional Notes.
14
15
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Nine Months Ended September 30, 1997
- --------------------------------------------------------------------------------
At September 30, 1997, $2,238 in interest remains outstanding on the Regional
Notes and 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 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
25% of Common Stock purchased July 1, 1997
25% of Common Stock purchased October 1, 1997
the balance of Common Stock purchased January 1, 1998
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.
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 September 3, 1997, all Series A Note Holders representing the total
$966,000 principal outstanding balance of the Series A Notes had exercised their
conversion rights. As a result of these conversions, 1,932,000 shares of the
Company's Common Stock were issued and Warrants to purchase 1,932,000 shares of
the Company's Common Stock were outstanding. None of these Warrants were
exercised prior to their expiry date at September 30, 1997.
At September 30, 1997, $83,851 in accrued interest remains outstanding on the
Notes. This amount has been recorded in current accounts payable.
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16
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Nine Months Ended September 30, 1997
- --------------------------------------------------------------------------------
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.
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 were issued.
On July 3, 1997, upon mutual agreement between the Company and the Santa Eloisa
Owners, the second installment of the Purchase Option Payment was made to the
Santa Eloisa Owners (see note 4) with $100,000 in cash and 23,333 shares of the
Company's Common Stock. As of September 30, 1997 the 23,333 shares have not yet
been issued and remain issuable.
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 September 3, 1997, Series A Note Holders representing the remaining
$900,000 principal amount of the Series A Notes had exercised their conversion
rights. As a result of these conversions, 1,800,000 shares of the Company's
Common Stock were issued.
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17
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Nine Months Ended September 30, 1997
- --------------------------------------------------------------------------------
On September 29, 1997, the Company accepted subscriptions aggregating $1,888,000
pursuant to a private placement, and issued 3,432,727 shares of the Company's
Common Stock. The proceeds of the private placement were used to pay i) an
aggregate of $1,500,000 principal pursuant to the Demand Notes, ii) $250,000
principal pursuant to the Bridge Note and iii) $138,000 principal pursuant to
the Regional Notes.
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 December 31, 1996 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.
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.
On September 10, 1997, as part of a severance package for an employee, the
Company issued a warrant to purchase 50,000 shares of the Company's Common Stock
for a period of 2 years at a price of $1.17 per share. Fair value of the
warrants was considered nominal by the company.
On September 10, 1997, as part of a severance package for a second employee, the
Company issued a warrant to purchase 25,000 shares of the Company's Common Stock
for a period of 2 years at a price of $0.95 per share. A compensation expense of
$4,375 was recorded for the issuance of the warrant.
As of September 30, 1997, the Warrants issued in connection with the exercise of
conversion rights of Series A Notes to purchase 1,932,000 shares of the
Company's Common Stock have expired. These warrants were 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).
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18
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Nine Months Ended September 30, 1997
- --------------------------------------------------------------------------------
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 nine months ended September 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 $ 1.25
Granted during the period 170,000 $ 1.17 $ 1.17
Cancelled during the period (50,000) $ 1.17 $ 1.17
- -------------------------------------------------------------------------------------------
Outstanding at September 30, 1997 900,000 $ 1.17 to 1.28 $ 1.23
Exercisable at September 30, 1997 632,500 $ 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
nine months ended September 30, 1997 would have been increased to the pro forma
amounts as follows:
Net loss
As reported $ 1,541,347
Pro forma $ 1,598,660
Net loss per common share
As reported $ 0.23
Pro forma $ 0.24
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19
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Nine Months Ended September 30, 1997
- --------------------------------------------------------------------------------
The estimated weighted average fair value of options granted during the nine
months ended September 30, 1997, was $0.49 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 September 30, 1997
was 4.1 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 Identifiable Loss for the
nine months ended Assets nine months ended Identifiable
September 30, 1997 September 30, 1996 Assets
- -----------------------------------------------------------------------------------------------------
Canada $ 1,223,697 $ 245,043 $ 241,340 $ 574,045
Barbados 5,771 1,999 34,851 --
Chile 311,879 1,802,665 7,858 620,133
- -----------------------------------------------------------------------------------------------------
Consolidated $ 1,541,347 2,049,707 $ 284,049 $1,194,178
=====================================================================================================
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:
YEAR AMOUNT
1997 $ 20,174
1998 20,174
1999 20,174
2000 20,174
2001 11,768
----------------
Total $ 92,464
================
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20
FREMONT GOLD CORPORATION
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
For the Nine Months Ended September 30, 1997
- --------------------------------------------------------------------------------
The Company leases vehicles under agreements which are classified as capital
leases. Leased capital assets included in Property and Equipment at September
30, 1997 are as follows:
- ------------------------------------------
Leased Vehicles $38,407
Less: Accumulated Depreciation 2,633
- ------------------------------------------
Total $35,774
==========================================
All capitalized leases expire within one year of September 30, 1997.
15. SUBSEQUENT EVENTS
(a) On October 3, 1997, the Company was granted a sixty day extension for
signing the final contract on the Laja property. See note 4(d).
(b) On October 6, 1997, the Company received a subscription for 90,909 shares
of the Company's Common Stock at an offering price of $0.55 per share
aggregating $50,000 to the Company.
(c) On October 17, 1997, the Company repaid the remaining $50,000 principal
balance of the Bridge Note and the $30,562 in interest that had accrued
to that date.
(d) On October 17, 1997, the Company accepted a subscription for 363,636
shares of the Company's Common Stock at an offering price of $.55 per
share aggregating $200,000 to the Company.
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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 September 30, 1997, the Company had current assets of $49,484, as
compared to current assets of $1,094,221 at December 31, 1996. The $1,044,737
decrease at September 30, 1997, reflects a $1,006,538 decrease in cash and a
decrease in accounts receivable and prepaid expenses of $38,199. At September
30, 1997, the Company had current liabilities of $673,781 as compared to current
liabilities of $2,033,124 at December 31, 1996. The decrease at September 30,
1997 is comprised of a $467,815 increase in accounts payable and accrued
liabilities and a $1,827,158 reduction in the amounts due to related parties,
the promissory note payable and the current portion of capital lease obligations
collectively.
At September 30, 1997 the Company has a net worth of $1,373,426, as
compared to a net worth of ($461,682) at December 31, 1996. The increase in net
worth is a result of the conversion of the Series A Convertible Notes and of the
partial completion of a private placement initiated in the third quarter.
On October 6 and 17, 1997, the Company received a subscription for
90,909 and 363,636 shares of the Company's Common Stock, respectively, at an
offering price of $0.55 per share aggregating $250,000 to the Company. On
October 17, 1997, the Company repaid the remaining $50,000 principal balance of
the Bridge Note and the $30,562 in interest that had accrued on the Note to that
date.
Given effect to the above described subsequent events, the Company
has current assets of $218,922, current liabilities of $593,696 and a net worth
of $1,623,426.
RESULTS OF OPERATIONS
The Company had a loss during the nine months ended September 30,
1997, of $1,541,347 or $0.23 per share. For the nine months ended September 30,
1996 the Company's loss was $284,049 or $0.11 per share.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 1997, the Company's
working capital deficiency decreased to $624,297. The decrease is largely due to
the repayment and conversion of the Series A Convertible Notes.
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 September 3, 1997, Series A Note Holders representing the total $966,000
principal amount of the outstanding balance of the Series A Notes had exercised
their conversion rights. As a result of these conversions, 1,932,000 Units were
issued by the Company. None of the Warrants underlying the Units were exercised.
The Warrants expired on September 30, 1997.
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22
PLAN OF OPERATION
The Company has experienced operating losses since inception,
resulting in working capital and accumulated deficit positions. The working
capital deficit at September 30, 1997 is due to the disparity between the
current accounts payable and accrued liability balance and the cash balance. The
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 Company does not currently have sufficient funds to meet the
exploration objectives presently planned. Management recognizes that the Company
must generate additional financial resources to enable it to continue
operations. The Company has temporarily suspended its current operations pending
completion of its financing efforts. Upon completion of its financing efforts,
the Company 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.
The Company's near term operational plan is to actively pursue i) the
sale of equity securities, ii) joint venture arrangements with third parties for
the exploration of one or more of its properties and iii) the sale of one or
more of its properties. The funds raised through a sale of equity securities
and/or properties would be made available to the Company. In addition, to the
extent the Company is successful in securing a joint venture partner(s) on one
or more of its properties, it will reduce the required financial resources of
the Company.
To date the Company has been unable to raise additional financial
resources through the sale of equity securities or any of its properties. In
addition, the Company has been unable to secure a joint venture partner(s) on
any of its properties. As a result, the Company has taken significant actions to
reduce the financial resources required by the Company's operations. The actions
taken by the Company include i) the discontinuance of all property acquisition
activities, ii) the suspension of all exploration programs, iii) a substantial
reduction in administration and geological field support personnel, iv) deferral
of payment of all salaries to executive and senior management of the Company and
v) significant reductions in general and administrative expenditures.
Although the Company is actively pursuing the financial resources it
requires, no assurances can be given that the Company will be successful in
raising additional capital. If the Company is unable to obtain adequate
additional financing, the Company will be unable to meet its financial
obligations with respect to the purchase options on one or more of its
properties, resulting in loss of the property(s) and all exploration
expenditures made to date.
To the extent the Company is successful in raising addition capital
it will resume its operational plan to complete exploration on its principal
mineral property interests and to pursue the identification and acquisition of
additional mineral properties.
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 September 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.
To the extent additional capital is available to the Company, the
Company intends to expend 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
22
23
Company has the ability to exercise control over the amount and timing of a
significant portion of these additional costs.
The Company currently anticipates that it will sell additional
securities at a price sufficient to raise approximately $3 million to $4
million, either pursuant to registration or an exemption from registration under
the Act, and enter into joint venture arrangements with third parties for the
exploration of one or more of its properties within the next 12 months, however,
there can be no assurance that the Company will be successful in completing such
endeavors.
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.
During the next 12 months the Company will focus its human and
financial resources on obtaining the required financial resources to resume 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 4 full time employees. To the extent the
Company is successful in acquiring the required financial resources to resume
its operating activities, it may hire additional employees or consultants on a
full time basis.
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24
FREMONT GOLD CORPORATION
PART II - OTHER INFORMATION
Item 1 - Legal Proceeding
There are no materials 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 September 30, 1997, the Company is in default on the $83,851 in
accrued interest payable on the Series A Convertible Notes and on the
$50,000 principal balance and $30,085 in accrued interest payable on
the Bridge Note.
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 Company (1)
in favor of International Freedom Ltd.
4.5.2 Warrant to purchase 650,000 shares of Common Stock, dated April (1)
1, 1997, issued to 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. Hopley, (1)
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
1. CURRENT REPORT ON FORM 8K DATED SEPTEMBER 29, 1997, reporting a sale
of equity securities pursuant to Regulation S.
2. CURRENT REPORT ON FORM 8K DATED NOVEMBER 3, 1997, reporting a sale of
equity securities pursuant to Regulation S.
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26
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: NOVEMBER 7, 1997 By: /s/ MICHAEL J. HOPLEY
-------------------------------
Michael J. Hopley, President
26