U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-27845
VEGA-ATLANTIC CORPORATION
---------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
COLORADO 84-1304106
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(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
435 Martin Street, Suite 2000
Blaine, Washington 98230
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(Address of Principal Executive Offices)
(360) 332-3823
-------------------------
(Issuer's telephone number)
N/A
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
----- -----
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Class Outstanding as of November 12, 2002
----- -----------------------------------
Common Stock, $.00001 par value 22,532,110
Transitional Small Business Disclosure Format (check one)
Yes No X
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BALANCE SHEETS 2
INTERIM STATEMENTS OF OPERATIONS 3
INTERIM STATEMENTS OF CASH FLOWS 4
NOTES TO INTERIM FINANCIAL STATEMENTS 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 8
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 12
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 12
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 15
ITEM 5. OTHER INFORMATION 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 15
SIGNATURES 15
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
----------------------------
VEGA-ATLANTIC CORPORATION
(AN EXPLORATION STAGE COMPANY)
INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(Unaudited)
BALANCE SHEETS
INTERIM STATEMENTS OF OPERATIONS
INTERIM STATEMENTS OF CASH FLOWS
NOTES TO INTERIM FINANCIAL STATEMENTS
1
VEGA-ATLANTIC CORPORATION
(An Exploration Stage Company)
BALANCE SHEETS
September 30, March 31,
2002 2002
----------- -----------
(Unaudited) (Consolidated,
ASSETS Note 2)
CURRENT ASSETS
Cash $ 96 $ 1,196
Accounts receivable (Note 5) 25,000 --
----------- -----------
$ 25,096 $ 1,196
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 50,436 $ 88,588
Advances from related parties (Note 4) 182,351 367,381
----------- -----------
232,787 455,969
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, no par value; 20,000,000 shares authorized,
nil shares issued and outstanding -- --
Common stock, $.00001 par value, 100,000,000 shares authorized
15,213,405 (March 31, 2002 - 15,213,405) shares issued and outstanding 339 339
Additional paid-in capital 9,367,586 9,367,586
Obligation to issue shares (Note 4) 219,561 --
Treasury stock (Note 5) (12,000) --
Deficit accumulated during the exploration stage (9,783,177) (9,822,698)
----------- -----------
Total stockholders' equity (deficit) (207,691) (454,773)
----------- -----------
$ 25,096 $ 1,196
=========== ===========
CONTINGENCIES (Note 1)
The accompanying notes are an integral part of these interim financial statements
2
VEGA-ATLANTIC CORPORATION
(An Exploration Stage Company)
INTERIM STATEMENTS OF OPERATIONS
(Unaudited)
Three Three January 28,
months months Six months Six months 1987
ended ended ended ended (inception)
September September September September to September
30, 2002 30, 2001 30, 2002 30, 2001 30, 2002
------------ ------------ ------------ ------------ ------------
(Consolidated, (Consolidated,
Note 2) Note 2)
EXPLORATION EXPENSES
Joint venture acquisition costs $ -- $ -- $ -- $ -- $ 1,278,439
Claims staking and exploration -- -- -- -- 112,384
Research and development -- -- -- -- 783,182
------------ ------------ ------------ ------------ ------------
-- -- -- -- 2,174,005
------------ ------------ ------------ ------------ ------------
GENERAL AND ADMINISTRATIVE EXPENSES
Consulting fees -- -- -- -- 132,750
Directors' fees (recovery) -- (32,766) -- (28,266) 49,500
Office and general 57,327 55,273 87,374 116,302 3,600,795
Interest expense 6,811 5,611 16,294 15,756 240,219
Professional fees 7,251 5,765 18,811 29,408 316,766
Stock-based compensation -- -- -- -- 262,247
Gain on settlement of debt -- -- -- -- (66,267)
Gain on sale of joint venture interest -- -- -- (50,000) (69,318)
------------ ------------ ------------ ------------ ------------
71,389 33,883 122,479 83,200 4,466,692
------------ ------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE THE FOLLOWING (71,389) (33,883) (122,479) (83,200) (6,640,697)
Gain on settlement of lawsuit (Note 5) 162,000 657,066 162,000 657,066 819,066
Loss on settlement of convertible promissory notes -- -- -- -- (1,754,917)
------------ ------------ ------------ ------------ ------------
INCOME (LOSS) FROM
CONTINUING OPERATIONS 90,611 623,183 39,521 573,866 (7,576,548)
DISCONTINUED OPERATIONS
Loss from discontinued operations of Century
Manufacturing, Inc. -- -- -- -- (2,206,629)
------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS) FOR THE PERIOD $ 90,611 $ 623,183 $ 39,521 $ 573,866 $ (9,783,177)
============ ============ ============ ============ ============
BASIC INCOME PER SHARE $ 0.01 $ 0.04 $ 0.00 $ 0.04
============ ============ ============ ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 15,213,405 14,588,405 15,213,405 14,588,405
============ ============ ============ ============
The accompanying notes are an integral part of these interim financial statements
3
VEGA-ATLANTIC CORPORATION
(An Exploration Stage Company)
INTERIM STATEMENTS OF CASH FLOWS
(Unaudited)
January 28,
Six months Six months 1987
ended ended (inception) to
September 30, September 30, September 30,
2002 2001 2002
----------- ----------- -----------
(Consolidated,
Note 2)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) for the period $ 39,521 $ 573,866 $(9,783,177)
Adjustments to reconcile net loss to net cash from operating activities:
- non-cash loss on sale of subsidiary -- -- 1,687,000
- non-cash gain on sale of joint venture -- -- (19,318)
- non-cash research and development expense -- -- 783,182
- non-cash interest recognized through discount adjustment -- -- 31,818
- common stock issued in settlement of debt -- -- 84,992
- impairment of interest in mineral properties -- -- 1,303,611
- stock-based compensation -- -- 262,247
- loss on settlement of convertible promissory notes -- -- 1,754,917
- gain on settlement of debt, net of current period accrual -- -- (61,267)
- gain on settlement of lawsuit, net of current period interest accrual -- (657,066) (651,316)
- gain on sale of joint venture interest -- -- (50,000)
- gain on return of Treasury stock (12,000) (12,000)
- management fees accrued 115,050 115,050
- net changes in working capital items (63,152) 93,934 329,449
----------- ----------- -----------
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES 79,389 10,734 (4,224,812)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances repaid to related parties - net (80,519) (11,133) 1,441,453
Interest paid -- -- (1,433)
Convertible notes -- -- 99,500
Obligation to issue shares 219,561 -- 219,561
Sale of common stock -- -- 3,357,000
----------- ----------- -----------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES (80,519) (11,133) 4,896,520
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Mineral property acquisition and exploration -- -- (622,567)
Purchase of subsidiaries, net of cash acquired -- -- (99,045)
Proceeds from sale of joint venture interest -- -- 50,000
----------- ----------- -----------
CASH FLOWS USED IN INVESTING ACTIVITIES -- -- (671,612)
----------- ----------- -----------
INCREASE (DECREASE) IN CASH (1,100) (399) 96
CASH, BEGINNING OF PERIOD 1,196 1,442 --
----------- ----------- -----------
CASH, END OF PERIOD $ 96 $ 1,043 $ 96
=========== =========== ===========
Non-cash transactions: Refer to Note 4.
The accompanying notes are an integral part of these interim financial statements
4
VEGA-ATLANTIC CORPORATION
(An Exploration Stage Company)
NOTES TO THE INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
--------------------------------------------------------------------------------
(Unaudited)
NOTE 1: NATURE AND CONTINUANCE OF OPERATIONS
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The Company is an exploration stage company and to date has not commenced any
commercial operations or generated any revenues. Due to the inability to raise
sufficient capital, the Company has either sold or disposed of its interests in
mineral properties.
At September 30, 2002, the Company had a working capital deficiency of $207,691
and has incurred substantial losses to date and further losses are anticipated
in the future. These factors raise substantial doubt regarding the Company's
ability to continue as a going concern. The Company's future operations are
dependent on its ability to raise additional working capital, settling its
outstanding debts and ultimately on generating profitable operations from a new
business venture.
Unaudited Interim Financial Statements
The accompanying unaudited interim consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB of Regulation
S-B. They do not include all information and footnotes required by generally
accepted accounting principles for complete financial statements. However,
except as disclosed herein, there have been no material changes in the
information disclosed in the notes to the financial statements for the year
ended March 31, 2002 included in the Company's Annual Report on Form 10-KSB
filed with the Securities and Exchange Commission. The interim unaudited
consolidated financial statements should be read in conjunction with those
financial statements included in the Form 10-KSB. In the opinion of Management,
all adjustments considered necessary for a fair presentation, consisting solely
of normal recurring adjustments, have been made. Operating results for the Six
months ended September 30, 2002 are not necessarily indicative of the results
that may be expected for the year ending March 31, 2003.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------------------
Principles of Consolidation
The comparative financial statements have been prepared on a consolidated basis
and include the accounts of the Company and its 100% owned subsidiaries, Polar
Explorations Ltd. and Alaskan Explorations Corp. which were sold during May,
2001. All significant intercompany transactions and account balances have been
eliminated.
Use of Estimates and Assumptions
Preparation of the Company's financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all liquid investments, with an original maturity of three
months or less when purchased, to be cash equivalents.
Foreign Currency Translation
The financial statements are presented in United States dollars. In accordance
with Statement of Financial Accounting Standards No. 52, "Foreign Currency
Translation", foreign denominated monetary assets and liabilities are translated
to their United States dollar equivalents using foreign exchange rates which
prevailed at the balance sheet date. Revenue and expenses are translated at
average rates of exchange during the year. Related translation adjustments are
reported as a separate component of stockholders' equity, whereas gains or
losses resulting from foreign currency transactions are included in results of
operations.
Interest in Mineral Properties
Mineral property acquisition costs, capital contributions and exploration costs
are expensed as incurred until such time as proven economically recoverable
reserves are established.
5
VEGA-ATLANTIC CORPORATION
(An Exploration Stage Company)
NOTES TO THE INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
--------------------------------------------------------------------------------
(Unaudited)
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (con't)
--------------------------------------------------------------------------------
Net Earnings (Loss) per Common Share
Basic earnings (loss) per share includes no dilution and is computed by dividing
income available to common stockholders by the weighted average number of common
shares outstanding for the period. Dilutive earnings (loss) per share reflects
the potential dilution of securities that could share in the earnings of the
Company. The accompanying presentation is only of basic earnings per share as
the potentially dilutive factors are anti-dilutive to basic earnings per share.
Income Taxes
The Company follows the liability method of accounting for income taxes. Under
this method, deferred income tax assets and liabilities are recognized for the
estimated tax consequences attributable to differences between the financial
statement carrying values and their respective income tax basis (temporary
differences). The effect on deferred income tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Stock-Based Compensation
The Company accounts for stock-based compensation in respect to stock options
granted to employees and officers using the intrinsic value based method in
accordance with APB 25. Stock options granted to non-employees are accounted for
using the fair value method in accordance with SFAS No. 123. In addition, with
respect to stock options granted to employees, the Company provides pro-forma
information as required by SFAS No. 123 showing the results of applying the fair
value method using the Black-Scholes option pricing model.
The Company accounts for equity instruments issued in exchange for the receipt
of goods or services from other than employees in accordance with SFAS No. 123
and the conclusions reached by the Emerging Issues Task Force in Issue No.
96-18. Costs are measured at the estimated fair market value of the
consideration received or the estimated fair value of the equity instruments
issued, whichever is more reliably measurable. The value of equity instruments
issued for consideration other than employee services is determined on the
earliest of a performance commitment or completion of performance by the
provider of goods or services as defined by EITF 96-18.
On March 31, 2000, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No.44, Accounting for Certain Transactions Involving Stock
Compensation - An Interpretation of APB Opinion No. 25 ("FIN 44"), which
provides guidance as to certain applications of APB 25. FIN 44 is generally
effective July 1, 2000 with the exception of certain events occurring after
December 15, 1998. The Company has determined that the implementation of this
standard does not have a material impact on its financial statements.
Comparative figures
Certain of the comparative figures have been restated to conform with the
current period's presentation.
NOTE 3: EMPLOYEE STOCK OPTION PLAN
--------------------------------------------------------------------------------
On May 1, 2000, the shareholders of the Company as represented by 51% of the
issued and outstanding common shares of the Corporation voted to approve the
creation of an employee stock option plan. The plan extends for a 10-year term
and consists of 500,000 share options priced at $1.00 per share.
All options granted expire on April 30, 2010. Shares which may be acquired
through the plan may be authorized but unissued shares of common stock or issued
shares of common stock held in the Company's treasury. Options granted under the
plan will not be in lieu of salary of other compensation for services.
As of March 31, 2002 and September 30, 2002, 487,500 options with an exercise
price of $1.00 per share of common stock are outstanding and during the period,
no options had been exercised or forfeited, and no options had expired.
6
VEGA-ATLANTIC CORPORATION
(An Exploration Stage Company)
NOTES TO THE INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
--------------------------------------------------------------------------------
(Unaudited)
NOTE 4: RELATED PARTY TRANSACTIONS
--------------------------------------------------------------------------------
During the period ended September 30, 2002 the Company incurred managerial,
administrative and investor relation services of $59,550 (2001 - $120,200) to
Investor Communications International, Inc. ("ICI") under a consulting services
and management agreement dated April 1, 1999. A director of the Company provides
consulting services to ICI and was paid approximately $5,325 during the period
ended September 30, 2002 (2001 - $6,000). On August 22, 2002 the Company
committed to issue 7,318,705 common shares in settlement of $219,561 of debts to
ICI and other related parties. As at September 30, 2002 this settlement amount
has been recorded as an obligation to issue shares as the shares were issued
subsequently. As at September 30, 2002, $162,210 is owed to ICI (2001 - $238,853
plus $9,778 accrued interest).
In addition, at September 30, 2002 $20,140 is owing to certain shareholders for
cash advances and accrued interest at 9% per annum (March 31, 2002 - $5,722).
The balance of amounts owing to certain shareholders are unsecured and without
any specified terms of repayment.
NOTE 5: LITIGATION
--------------------------------------------------------------------------------
On January 12, 2000, the Company entered into a letter of intent with Golden
Thunder Resources Ltd. ("Golden Thunder"), a Canadian public company, to
purchase from Golden Thunder 80% of the issued and outstanding shares of common
stock of Tun Resources Inc., a Canadian corporation ("Tun Resources"), with an
option to purchase the remaining 20% of the issued and outstanding shares of Tun
Resources at fair market value.
On May 2, 2000, the Company executed a definitive closing agreement to purchase
the 80% interest in Tun Resources. The 80% interest in Tun Resources was
purchased in exchange for the funding commitment of $1,180,000 by August 15,
2000 (subsequently extended to February 15, 2001, and further extended to the
date of the vendor's next annual shareholder meeting) and the issuance of
400,000 restricted shares in the capital of the Company valued at $672,000.
On December 12, 2000, as amended on February 9, 2001, the Company provided an
offer to Golden Thunder that outlined a revised offer to purchase the remaining
20% of Tun Resources and to repurchase all of the Company's 400,000 shares owned
by Golden Thunder in consideration for $113,750. The Company also issued a
letter to Golden Thunder requesting an extension to the funding commitment
requirement outlined in the Acquisition Agreement until such time as the
shareholders of Golden Thunder have voted to accept or reject the amended offer
dated February 9, 2001. Subsequently, the amended offer was rejected by the
shareholders of Golden Thunder. The Company then initiated legal proceedings
against Golden Thunder and Tun Resources for breaches of the Acquisition
Agreement and other causes of action, and sought damages of in excess of
$800,000. Golden Thunder and Tun Resources then filed a statement of defense
alleging that the Company breached the acquisition agreement. Accordingly, for
accounting purposes effective March 31, 2001 the Company ceased consolidating
the assets, liabilities and operations of Tun Resources in its financial
statements and recorded a loss on impairment of $990,645 relating to this
investment.
During the quarter ended September 30, 2002, for consideration of $150,000 of
which $125,000 had been received as at September 30, 2002, the Company entered
into an agreement in settlement of its lawsuit with Golden Thunder and Tun
Resources. Effective November 1, 2002, upon receipt of the final $25,000, the
Company released all of its claims against Golden Thunder and Tun Resources and
Golden Thunder and Tun Resources returned 400,000 shares to the company which
will be cancelled, resulting in an additional gain on settlement of $12,000.
NOTE 6: INCOME TAXES
--------------------------------------------------------------------------------
Income taxes are provided pursuant to SFAS No. 109, Accounting for Income Taxes.
The statement requires the use of an asset and liability approach for financial
reporting for income taxes. If it is more likely than not that some portion or
all of a deferred tax asset will not be realized, a valuation allowance is
recognized. Accordingly, as the realization and use of the net operating loss
carryforward is not probable, the tax benefit of the loss carryforward has been
offset by a valuation allowance of the same amount.
7
Statements made in this Form 10-QSB that are not historical or current
facts are "forward-looking statements" made pursuant to the safe harbor
provisions of Section 27A of the Securities Act of 1933 (the "Act") and Section
21E of the Securities Exchange Act of 1934. These statements often can be
identified by the use of terms such as "may," "will," "expect," "believe,"
"anticipate," "estimate," "approximate" or "continue," or the negative thereof.
The Company intends that such forward-looking statements be subject to the safe
harbors for such statements. The Company wishes to caution readers not to place
undue reliance on any such forward-looking statements, which speak only as of
the date made. Any forward-looking statements represent management's best
judgment as to what may occur in the future. However, forward-looking statements
are subject to risks, uncertainties and important factors beyond the control of
the Company that could cause actual results and events to differ materially from
historical results of operations and events and those presently anticipated or
projected. These factors include adverse economic conditions, highly speculative
nature of mineral acquisition and exploration, risks of foreign operation, entry
of new and stronger competitors, inadequate capital and unexpected costs. The
Company disclaims any obligation subsequently to revise any forward-looking
statements to reflect events or circumstances after the date of such statement
or to reflect the occurrence of anticipated or unanticipated events.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
Vega-Atlantic Corporation, a Colorado corporation (the "Company"),
currently trades on the OTC Bulletin Board under the symbol "VATL" and the
Frankfurt Stock Exchange under the symbol "VGA" (WKN: 936303). The Company is
primarily engaged in the business of minerals and oil and gas exploration,
acquisition, and development within the United States and worldwide.
CURRENT BUSINESS OPERATIONS
Tun Resources, Ltd.
On May 2, 2000, the Company entered into a share purchase and sale
agreement with Golden Thunder Resources Ltd. ("Golden Thunder") to purchase from
Golden Thunder approximately eighty percent (80%) of the issued and outstanding
shares of common stock of Tun Resources Ltd., a Canadian corporation ("Tun
Resources"), with an option to purchase the remaining twenty percent (20%) of
the issued and outstanding shares of Tun Resources (the "Acquisition
Agreement"). Pursuant to the terms of the Acquisition Agreement and extensions
thereto, the Company issued 1,600,000 shares of its restricted common stock to
Golden Thunder (400,000 shares after the reverse stock split) and provided
approximately $604,500 of funds to Tun Resources.
During the prior fiscal year, the Company was unable to timely provide the
required aggregate amount of $1,180,000 by February 15, 2001. On February 9,
2001, the Company provided an amended letter of offer to Golden Thunder that
outlined an offer to (i) purchase the remaining 20% of Tun Resources; (ii)
repurchase all of the Company's 400,000 (post-split) shares of common stock from
Golden Thunder; and (iii) request an extension to the funding commitment
requirement outlined in the Acquisition Agreement until such time as the
shareholders of Golden Thunder voted to accept or reject the offer (the "Letter
Offer"). The Letter Offer was presented to the shareholders of Golden Thunder
for their approval and such approval was not received.
On July 8, 2001, the Company filed a Statement of Claim in the Supreme
Court of British Columbia naming Golden Thunder Resources Ltd. and Tun Resources
Inc. as defendants ("Action No. 5013872"). On November 1, 2002, the Company, Tun
Resources and Golden Thunder entered into a settlement agreement and release of
all claims (the "Settlement Agreement"). Pursuant to the terms of the Settlement
Agreement, (i) Tun Resources and Golden Thunder paid to the Company $150,000.00;
(ii) the Company released Tun Resources and Golden Thunder from any and all
claims arising directly or indirectly from Action No. 5013872; and (iii) Golden
Thunder returned to the Company its stock certificate evidencing the 1,600,000
(400,000 post-split) shares of restricted common stock, which will be cancelled.
See "Part II. Item 1. Legal Proceedings" for further disclosure.
8
The Ailaoshan/Xiaoshuijing Gold Project
On May 4, 2000, the Company entered into a letter agreement with the No. 1
Geological Brigade of the Yunnan Bureau of Geology and Mineral Resources of
Qujing City, Yunnan Province, China (the "Letter Agreement"), whereby the
Company has the right to acquire an approximate 70% interest in the Ailaoshang
gold concession and prospect with claims that include the Xiaoshuijing gold
resource located in the Chuxion Prefecture, Yunnan Province, China. Management
plans to conduct future due diligence on the gold resource to provide the basis
for negotiation of the final terms of the joint venture agreement, should the
due diligence warrant continuing such negotiations. According to the terms of
the Letter Agreement, the Company must invest up to $2,500,000 to expand the
gold resource and increase mine production, and that the No. 1 Geological
Brigade will contribute the property, exploration and mining rights, permits,
land use rights and other work to date completed on the gold resource.
As of the date of this Quarterly Report, management of the Company does not
believe that a definitive agreement will be consummated nor that any other
China-based venues will be pursued.
Investment in Other Ventures
As of the date of this Quarterly Report, management seeks to develop
business opportunities that may exclude resources exploration and production
programs. Activities in China have been difficult to attract investment to fund
exploration and development of initiatives.
RESULTS OF OPERATION
Six-Month Period Ended September 30, 2002 Compared to Six-Month Period Ended
September 30, 2001
The Company's net income for the six-month period ended September 30, 2002
was approximately $39,521 compared to net income of approximately $573,866 for
the six-month period ended September 30, 2001.
During the six-month periods ended September 30, 2002 and 2001, the Company
did not incur any exploration expenses primarily due to the decrease in
investment relating to its Chinese joint venture projects.
During the six-month period ended September 30, 2002, the Company recorded
general and administrative expenses of approximately $122,479 compared to
general and administrative expenses of approximately $133,200 incurred during
the six-month period ended September 30, 2001 (an increase of $39,279). Although
the Company actually incurred $122,479 of general and administrative expenses
(resulting in net loss of $122,479), such loss was offset by $162,000 realized
as a gain from settlement of the litigation with Tun Resources and Golden
Thunder, resulting in net income of $39,521. And, although the Company actually
incurred $133,200 of general and administrative expenses during the six-month
period ended September 30, 2001, such expenses were offset by $50,000 realized
as gain on the sale of Alaskan Explorations Corp. and related Lemachang silver
deposit Sino-Foreign joint venture interest, $28,266 from recovery of directors'
fees, and $657,066 realized as a gain from settlement of the litigation with Tun
Resources and Golden Thunder, resulting in net gain of $573,866.
9
The increase in general and administrative expenses during the six-month
period ended September 30, 2002 compared to the six-month period ended September
30, 2001 was primarily due to an increase in office and general expenses which
related to the scale and scope of overall business activity during such period.
During the six-month period ended September 30, 2002, the Company's general and
administrative expenses consisted of: (i) $87,374 in office and general
expenses; (ii) $18,811 in professional fees; and (iii) $16,294 in interest
expense. During the six-month period ended September 30, 2001, the Company's
general and administrative expenses consisted of (i) $116,302 in office and
general expenses; (ii) $29,408 in professional fees; and (iii) $15,756 in
interest expense. General and administrative expenses generally include
corporate overhead, financial and administrative contracted services, and
consulting costs and professional fees.
Of the $122,479 incurred as general and administrative expenses incurred
during the six-month period ended September 30, 2002, the Company incurred to
Investor Communications International, Inc. ("ICI") approximately $59,550 for
amounts due and owing for managerial, administrative, financial and investor
relation services rendered by ICI. This resulted in an aggregate of
approximately $303,097 due and owing. Therefore, the Company and ICI entered
into a settlement agreement dated August 22, 2002 (the "Settlement Agreement").
Pursuant to the terms of the Settlement Agreement, (i) the Company agreed to
settle an aggregate debt of $140,887.31 due and owing ICI as of August 22, 2002,
including accrued interest, by the issuance of 4,696,244 shares of its
restricted common stock at the rate of $0.03 per share (which is the average of
the price of the Company's common stock trading on the OTC Bulletin Board, which
sold from July 1, 2002 through August 22, 2002, discounted by 25%); and (ii) ICI
agreed to accept the issuance of the 4,696,244 shares of restricted common stock
as settlement and full satisfaction of the aggregate debt due and owing it. See
"Part II. Other Information. Item 2. Changes in Use of Proceeds and Securities".
One of the directors of the Company is contracted by ICI and is part of the
management team provided by ICI to the Company. During the six-month period
ended September 30, 2002, Mr. Grant Atkins received from ICI approximately
$5,325 as compensation.
The Company and ICI entered into a two-year consulting services and
management agreement dated April 1, 1999 whereby ICI performs a wide range of
management, administrative, financial, marketing and public company services
including, but not limited to, the following: (i) international business
relations and strategy development, (ii) shareholder liaison, (iii) corporate
public relations, press release and public information distribution, (iv)
administration, including auditor and legal liaison, media liaison, corporate
minutebook maintenance and record keeping, corporate secretarial services,
printing and production, office and general duties, and (v) financial and
business planning services, including capital and operating budgeting, banking,
bookkeeping, documentation, database records, preparation of financial
statements and creation of annual reports. On April 1, 2001, the Company and ICI
renewed its consulting services and management agreement for an additional
two-year period.
As the Company has not and currently is not in the operational stage of
generating revenues, the services provided by ICI decreased during the six-month
period ended September 30, 2002 as compared to the same period during 2001. As
of the date of this Quarterly Report, such services provided by ICI include not
only those services listed above related to exploration, administration, public
company operations and maintenance of the Company, but also involved the
negotiation and due diligence of future business prospects and the negotiation
and settlement of the litigation with Tun Resources and Golden Thunder.
Moreover, ICI is continuously sourcing, identifying, investigating and
negotiating new business opportunities to present to the board of directors of
the Company. Other services provided by ICI include securing short-term advance
financing and sourcing of private placement funding.
10
As discussed above, the decrease in net income during the six-month period
ended September 30, 2002 as compared to net income during the six-month period
ended September 30, 2001 is attributable primarily to the gain of $657,066
realized from the settlement of the litigation with Tun Resources and Golden
Thunder and the gain of $50,000 realized from the sale of the joint venture
interest during the six-month period ended September 30, 2001. The Company's net
income during the six-month period ended September 30, 2002 was approximately
$39,521 or $0.00 per common share compared to net income of approximately
$573,866 or $0.04 per common share during the six-month period ended September
30, 2001. The weighted average number of shares outstanding were 15,213,405 for
the six-month period ended September 30, 2002 compared to 14,588,405 for the
six-month period ended September 30, 2001 (which were restated to take into
account the reverse stock split of 4 to 1).
LIQUIDITY AND CAPITAL RESOURCES
For Six-Month Period Ended September 30, 2002
The Company's financial statements have been prepared assuming that it will
continue as a going concern and, accordingly, do not include adjustments
relating to the recoverability and realization of assets and classifications of
liabilities that might be necessary should the Company be unable to continue in
operations.
As of the date of this Quarterly Report, there is substantial doubt
regarding the Company's ability to continue as a going concern as the Company
has not generated sufficient cash flow to funds its business operations and
material commitments. The Company's future success and viability, therefore, are
dependent upon the Company's ability to successfully develop new business
prospects under consideration, joint ventures, and the continuing ability to
generate capital financing. Management is optimistic that the Company will be
successful in its capital raising efforts; however, there can be no assurance
that the Company will be successful in raising additional capital. The failure
to raise additional capital may have a material and adverse effect upon the
Company and its shareholders.
Based upon a twelve-month work plan proposed by management, it is
anticipated that such a work plan would require approximately $500,000 of
financing designed to fund business operations. From the date of this Quarterly
Report, management believes that the Company can satisfy its cash requirements
for approximately the next six months based on the successful settlement of its
claims against Tun Resources and Golden Thunder and to obtain advances from
certain investors and related parties, as necessary.
As of September 30, 2002, the Company's current assets were $25,096 and its
current liabilities were $232,787. As of September 30, 2002, the current
liabilities exceeded current assets by $207,691. As of fiscal year ended March
31, 2002, the Company's current assets were $1,196 and its current liabilities
were $455,969. As of March 31, 2002, the current liabilities exceeded current
assets by $454,773.
The decrease in current liabilities during the six-month period ended
September 30, 2002 from fiscal year ended March 31, 2002 was due primarily to a
decrease in amounts owed as advances from related parties. See "Part II. Other
Information. Item 2. Changes in Use of Proceeds and Securities".
Stockholders' deficit decreased from ($454,773) for fiscal year ended March
31, 2002 to ($207,691) for the six-month period ended September 30, 2002.
The Company has not generated positive cash flows from operating
activities. For the six-month period ended September 30, 2002, net cash from
operating activities was ($79,389) compared to $10,734 of net cash from
operating activities for the six-month period September 30, 2001. As noted
above, the increase was comprised of (i) a decrease of net income to $39,521
during the period ended September 30, 2002 compared to net income of $573,866
during the six-month period ended September 30, 2001; (ii) net changes in
working capital items of ($63,152) during the six-month period ended September
30, 2002 compared to net changes in working capital items of $93,934 for the
six-month period ended September 30, 2001; (iii) adjustment of ($657,066) from
settlement of litigation with Tun Resources and Golden Thunder during the
six-month period ended September 30, 2001 compared to $-0- adjustment during the
six-month period ended September 30, 2002; and (iv) management fees accrued of
$115,050 during the six-month period ended September 30, 2002 compared to $-0-
during the six-month period ended September 30, 2001.
11
Net cash flows used in financing activities during the six-month period
ended September 30, 2002 were ($80,519) resulting primarily from obligations to
issue shares of restricted common stock pursuant to debt settlements compared to
net cash flows used in financing activities of ($11,133) during the six-month
period ended September 30, 2001.
Net cash flows from investing activities were $-0- during the six-month
periods ended September 30, 2002 and 2001.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Tun Resources Litigation
On July 8, 2001, the Company filed a Statement of Claim in the Supreme
Court of British Columbia naming Golden Thunder Resources Ltd. and Tun Resources
Inc. as defendants ("Action No. 5013872"). The Company alleged in the Statement
of Claim that certain representations were made by the defendants to the Company
as follows: (i) Tun Resources had good and marketable title to its assets; (ii)
the consideration paid by the Company was good and valuable consideration for
acquisition of the shares in Tun Resources; (iii) the intercorporate loan
financing, which was to be provided by financing arranged by private investments
and therefore the joint ventures were marketable; and (iv) the control of Tun
Resources would be transferred to the Company upon closing of the Acquisition
Agreement. The Company alleged in the Statement of Claim that such
representations were false and untrue and that the defendants made the
representations fraudulently or negligently knowing them to be untrue or
recklessly without caring whether they were true or false and that (i) the title
Tun Resources had to the assets was not good and marketable and was considerably
lower in value than represented to the Company; (ii) the consideration paid by
the Company to acquire the shares of Tun Resources was excessive and not good
and valuable consideration; (iii) the intercorporate loan could not be raised in
the manner agreed upon by the Company and defendants; and (iv) the board of
directors of Golden Thunder and Tun Resources refused or neglected to replace
the board of directors of Tun Resources with the board of directors of Golden
Thunder. The Company further alleged in the Statement of Claim that (i) the
defendants made such representations to the Company in order to induce the
Company to enter into the Acquisition Agreement; (ii) the Company reasonably
relied upon the representations made to it by the Defendants; and (iii) such
misrepresentations are breaches of material terms of the Acquisition Agreement
and have caused the Company loss and damages. The Company sought general and
special damages in excess of $800,000.00.
On August 2, 2001, Tun Resources and Golden Thunder filed its Statement of
Defense in which it alleged that the Company breached the Acquisition Agreement
by its failure to provide funding in the amount of $1,180,000 to Tun Resources
and that such failure to provide the required funding adversely affected the
value of assets to be purchased by the Company.
On November 1, 2002, the Company, Tun Resources and Golden Thunder entered
into a settlement agreement and release of all claims (the "Settlement
Agreement"). Pursuant to the terms of the Settlement Agreement, (i) Tun
Resources and Golden Thunder paid to the Company $150,000.00; (ii) the Company
released Tun Resources and Golden Thunder from any and all claims arising
directly or indirectly from Action No. 5013872; and (iii) Golden Thunder
returned to the Company its stock certificate evidencing the 1,600,000 (400,000
post-split) shares of restricted common stock, which will be cancelled.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On August 22, 2002, the board of directors of the Company authorized the
execution of settlement agreements between the Company and certain creditors of
the Company, and the subsequent issuance of 7,318,705 shares of its restricted
common stock.
12
(a) The Company had incurred a debt inclusive of accrued interest in the
aggregate amount of $140,887.31 to ICI for prior services rendered by ICI on
behalf of the Company including, but not limited to, financial, administrative,
investor relations and minerals, oil and gas acquisition, exploration and
management. Therefore, the Company and ICI entered into a settlement agreement
dated August 22, 2002 (the "ICI Settlement Agreement"). Pursuant to the terms of
the ICI Settlement Agreement, (i) the Company agreed to settle the $140,887.31
debt due and owing ICI by the issuance of 4,696,244 shares of its restricted
common stock at the rate of $0.03 per share (which is the average of the price
of the Company's common stock trading on the OTC Bulletin Board, which were sold
from July 1, 2002 through August 22, 2002, discounted by 25%); and (ii) ICI
agreed to accept the issuance of the 4,696,244 shares of restricted common stock
as settlement and full satisfaction of the aggregate debt due and owing it as of
the date of the ICI Settlement Agreement.
(b) The Company has incurred a debt inclusive of accrued interest in the
aggregate amount of $36,486.42 to Tri Star Financial Services, Inc. ("Tri Star")
pursuant to prior advances made by Tri Star to the Company. Therefore, the
Company and Tri Star entered into a settlement agreement dated August 22, 2002
(the "Tri Star Settlement Agreement"). Pursuant to the terms of the Tri Star
Settlement Agreement, (i) the Company agreed to settle the $36,486.42 debt due
and owing Tri Star by the issuance of 1,216,214 shares of its restricted common
stock at the rate of $0.03 per share (which is the average of the price of the
Company's common stock trading on the OTC Bulletin Board, which were sold from
July 1, 2002 through August 22, 2002, discounted by 25%); and (ii) Tri Star
agreed to accept the issuance of the 1,216,214 shares of restricted common stock
as settlement and full satisfaction of the aggregate debt due and owing it as of
the date of the Tri Star Settlement Agreement.
(c) The Company had incurred a debt inclusive of accrued interest in the
aggregate amount of $42,187.41 to Brent Pierce, an individual ("Pierce")
pursuant to prior advances made by Pierce to the Company. Therefore, the Company
and Pierce entered into a settlement agreement dated August 22, 2002 (the
"Pierce Settlement Agreement"). Pursuant to the terms of the Pierce Settlement
Agreement, (i) the Company agreed to settle the $42,187.41 debt due and owing
Pierce by the issuance of 1,406,247 shares of its restricted common stock at the
rate of $0.03 per share (which is the average of the price of the Company's
common stock trading on the OTC Bulletin Board, which were sold from July 1,
2002 through August 22, 2002, discounted by 25%); and (ii) Pierce agreed to
accept the issuance of the 1,406,247 shares of restricted common stock as
settlement and full satisfaction of the aggregate debt due and owing him as of
the date of the Pierce Settlement Agreement.
13
As a result of the issuance of the 7,318,705 shares of restricted common
stock pursuant to the ICI Settlement Agreement, the Tri Star Settlement
Agreement and the Pierce Settlement Agreement, there was a change in control of
the Company. The following table sets forth the name and address, as of the date
of this Report, and the approximate number of shares of common stock owned of
record or beneficially by each person who owned of record, or was known by the
Company to own beneficially, more than five percent (5%) of the Company's common
stock, and the name and shareholdings of each officers and director, and all
officers and directors as a group. As of the date of this Quarterly Report,
there are 22,532,110 shares of the Company's common stock issued and outstanding
(which includes the 400,000 shares of common stock returned by Golden Thunder
but have not yet been cancelled).
--------------------------------------------------------------------------------
Title of Class Name and Address of Amount and Nature Percent of
Beneficial Owner of Class Class
--------------------------------------------------------------------------------
(1)
Common Stock Investor Communications 5,696,244 25.28%
International, Inc.
435 Martin Street
Suite 2000
Blaine, Washington 98320
(1)
Common Stock TriStar Financial Services, Inc. 1,216,214 5.40%
435 Martin Street, Suite 2000
Blaine, Washington 98270
(1)
Common Stock Alexander W. Cox 4,763,300 21.14%
428 - 755 Burrard Street
Vancouver, British Columbia
Canada V6Z 1X6
(2)
Common Stock Brent Pierce 1,696,497 6.46%
16377 Lincoln Woods Court
Surrey, British Columbia
Canada V3S 0J8
(3)
Common Stock Pacific Rim Financial, Inc. 1,133,300 5.03%
60 Market Square
P.O. Box 364
Belize City, Belize
(1)(4)
Common Stock All officers and directors 5,000 0.003%
as a group (2 persons)
--------------------------------------------------------------------------------
14
(1)
These are restricted shares of common stock.
(2)
Of the 1,696,497 shares held of record by Brent Pierce, 290,250 shares are
free-trading.
(3)
Of the 1,133,300 shares held of record by Pacific Rim Financial, Inc.,
300,000 are free-trading.
(4)
Excludes the assumption of the exercise of options by each option holder
pursuant to the terms of the Non-Qualified Stock Option Plan to purchase an
aggregate of 75,000 shares of restricted common stock at $0.25 per share.
There are no arrangements or understandings among the entities and
individuals referenced above or their respective associates concerning election
of directors or other any other matters which may require shareholder approval.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
No report required.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No report required.
ITEM 5. OTHER INFORMATION
No report required.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
99.2 Certification Pursuant to 18 U.S.C. Section 1350.
(b) Reports
Report on Form 8-K filed on November 14, 2002.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
VEGA-ATLANTIC CORPORATION
Dated: November 14, 2002 By: /s/ Grant Atkins
---------------------------------
Grant Atkins, President and Chief
Executive Officer
Dated: November 14, 2002 By: /s/ Herb Ackerman
----------------------------------
Herb Ackerman, Secretary
15