).
F-15
--------------------------------------------------------------------------------
Golden Eagle International, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
During April 1997, a $1 million bank loan (see Note C) was secured by the pledge
of certain assets of relatives of an officer (and former president) for a period
of five years from closing of the loan. As consideration, the Company issued 20
million shares and an additional 5 million shares of common stock for renewals
and extensions of loans from the relatives, less $25,000 in previously accrued
interest. The 25 million restricted shares were recorded at $2.5 million ($.10
per share), the estimated fair value based on the sale of restricted stock to
individual investors in April 1997. The cost of the pledges, renewals and
extensions ($2.5 million less $25,000 of abated interest) was expensed in 1997
since the bank loan is subject to annual renewal. As part of the arrangement,
the Company was to assume a $165,000 personal loan of the officer, as partial
offset of Company amounts owed the officer. In 1998, the Company was released
from its agreement to assume by offset the $165,000 loan.
Convertible Debt
----------------
During 1996, the Company issued $188,500 of 6% debentures to a foreign
corporation which are convertible to common stock at the lesser of 80% of the
OTC Bulletin Board closing bid price the day prior to notice or $.30 per share
(see Note C). December 15, 1997, the holder converted $20,000 of the debentures
plus accrued interest of $17,757 into 429,060 shares of common stock ($.088 per
share). During 1998, the conversion factor was reduced from 80% to 50% and the
holder converted the remaining $158,500 of debentures and $3,932 of related
accrued interest into 2,773,447 shares of common stock at conversion rates of
ranging from $.056 to $.065 per share.
September 18, 1996, the Company initiated an agreement to purchase certain
mining equipment located in Bolivia from an individual for $20,000 cash and
convertible debentures totaling $1 million. The agreement was closed on February
10, 1997. The debenture holder subsequently converted all the debentures into
2,993,161 shares of common stock as provided for in the agreement. All voting
rights associated with the stock issued are to be placed in a voting trust with
the Company's board of directors as trustee. The Company has recorded the stock
issued at $299,316 ($.10 per share), the estimated value of its stock at the
date of the transaction.
On October 23, 1997, the Company issued a $100,000 Convertible Debenture to a
foreign corporation which is convertible to common stock at the lesser of 50% of
the OTC Bulletin Board average closing bid price for the three days prior to
notice or $.16 per share. On February 19, 1998, 3,062,821 shares were issued
upon conversion of this debenture and related accrued interest of $3,370 at a
conversion rate of $.03375 per share.
On March 27, 1997, the holder of a $50,000 note payable converted the note and
accrued interest $16,659 into 260,000 shares of common stock ($.25638 per
share).
F-16
--------------------------------------------------------------------------------
Golden Eagle International, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Note F - Related Party Transactions
During 1994, an officer (and former president) advanced a total of $44,107 to
the Company. In 1995, the officer advanced additional sums totaling $265,163,
was repaid $160,719, and applied $25,000 against a promissory note issued the
Company in 1994 in connection with the purchase of stock. In 1996, repayment of
the advances was agreed to, providing for interest at eight percent. Also during
1996, the officer loaned the Company an additional $84,500 and was repaid
$116,500. In 1997, the officer was repaid $48,800 on the loan. As of December
31, 1997, $55,250 plus accrued interest of $1,520 was owed the officer (a net
decrease of $42,788 during 1997). The loans are unsecured and due January 1,
2000. The loans are included in current liabilities due to related party nature.
In addition, as of December 31, 1997, $214,360 owed the officer for out-of
pocket operating expenses and unpaid salary is included in accounts payable, a
net increase of $44,943 during 1997. As of December 31, 1997 a combined total of
$271,130 was owed the officer for loans, accrued interest and amounts included
in accounts payable (a combined net increase of $2,155).
During 1996, the officer (and former president) discussed above received three
percent of the stock ownership of Eagle Mining of Bolivia, Ltd. in partial
consideration of the loans and advances made to the Company by the officer and
her family.
During 1996, four one-year notes payable, totaling $450,000 at an interest rate
of 10'%, were issued to a relative of an officer (and former president). On
March 22, 1997 the notes were renewed with an extended due date of January 1,
2000. Due to related party nature of the loans, the notes are included in
current liabilities. In April 1997, $12,500 of accrued interest was abated in
partial payment of the issuance of common stock for a loan guarantee and renewal
(see below). As of December 31, 1997, $450,000 and accrued interest of $67,949
is outstanding (a net increase of $51,258 during 1997). The notes are unsecured
but are personally guaranteed by the officer (and former president) and her
husband.
During 1995, relatives of an officer (and former president) advanced the Company
a total of $32,683 and were repaid $8,092. In 1996, repayment of the advances
was agreed to, providing for interest at twelve percent. Also during 1996, the
officer's relatives loaned an additional $195,658 to the Company. In 1997, the
relatives were repaid $165,000, of which $161,230 was applied to principal and
the balance to accrued interest. Also in 1997, additional advances totaling
$239,687 were made to the Company. On March 22, 1997 the notes were renewed with
an extended due date of January 1, 2000. Due to related party nature of the
loans, the notes are included in current liabilities. In April 1997, $12,500 of
accrued interest was abated in partial payment of the issuance of common stock
for a loan guarantee and renewal. As of December 31, 1997, $314,389 and accrued
interest of $171 is outstanding (a net increase of $69,528 during 1997). The
loans are unsecured.
F-17
--------------------------------------------------------------------------------
Golden Eagle International, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
During 1995, the Company issued 80,000 shares of common stock, valued at $.07
per share, to a relative of a former president for services.
During 1997, the Company issued 4 million shares of common stock to a relative
of a former president for services valued at $84,000 ($.032 per share).
During April 1997, a $1 million bank loan (see Note C) was secured by the pledge
of certain assets of relatives of an officer (and former president) for a period
of five years from closing of the loan. As consideration, the Company issued 20
million shares and an additional 5 million shares of common stock for renewals
and extensions of loans from the relatives, less $25,000 in previously accrued
interest. The 25 million restricted shares were recorded at $2.5 million ($.10
per share), the estimated fair value based on the sale of restricted stock to
individual investors in April 1997. The cost of the pledges, renewals and
extensions ($2.5 million less $25,000 of abated interest) was expensed in 1997
since the bank loan is subject to annual renewal. As part of the arrangement,
the Company was to assume a $165,000 personal loan of the officer, as partial
offset of Company amounts owed the officer. In 1998, the Company was released
from its agreement to assume by offset the $165,000 loan.
During March 1997, $5,000 loaned by a relative in December 1996 was repaid with
interest.
Through December 31, 1997, officers of GEBM have loaned the subsidiary a total
of $126,181 to support operations in Bolivia. The loans bear interest at 24% per
annum, are unsecured, and due on demand. $84,900 of the loans are for rent
charged by an officer for the use of mining equipment.
Note G - Commitments and Contingencies
Securities and Exchange Commission Investigation
------------------------------------------------
On May 7, 1998 the Securities and Exchange Commission (the 'Commission') filed a
civil injunctive action in the United States District Court of Colorado against
the Company, one current officer and a former officer of the Company. The
primary allegations relate to the possible distribution of unregistered
securities and the publication of misleading statements regarding the Company's
interest in a joint venture with Mineral Mountain Mining Company and the Silver
Bar Mine (see below). Management intends to contest the case vigorously but has
and will continue to explore potential settlement opportunities, and believes it
unlikely the Company will suffer any financial losses as a result of the action.
There is no disposition of this matter as of October 20, 1998.
F-18
--------------------------------------------------------------------------------
Golden Eagle International, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
The Commission staff has also informed the Company that it is investigating the
issue of whether a May 22, 1998 Company press release may have violated federal
securities laws. The staff has questioned whether the Company and its president
issued the press release concerning a geological report and related mineral
reserves on its Bolivian prospect without factual basis as to the validity of
the report. As a result of a subsequent internal review of the report,
management has concluded that the techniques used in the report were
insufficient to justify the calculations made although it still believes that
there is significant gold mineralization within the prospect. Management is
continuing to discuss the resolution of these issues with SEC staff, but have
denied any wrongdoing. It is impossible to determine at present whether the
earlier filed injunctive action will be amended to include the allegations
related to the press release, however, management believes it unlikely the
Company would suffer any financial losses as a result.
Former Officer and Other Employees
----------------------------------
In June 1998, a former officer filed a lawsuit against the Company seeking
540,659 shares of common stock for compensation in 1995 and 1996 pursuant to an
employment agreement. The Company vigorously denies the allegations and claims
the employee breached the employment agreement, including its fiduciary and
confidentiality provisions. As a result, the Company has filed a counter-claim.
Trial of the dispute is scheduled for trial August 30, 1999 in Denver District
Court. Litigation is subject to many uncertainties and the Company is unable to
predict the outcome of this matter.
The Company is considering a claim against two other former employees, the
former officer discussed above, and a company formed by the individuals that is
alleged to have usurped corporate opportunities of the Company and tortuously
interfered in its operations.
Disagreement with Consultant
----------------------------
During 1995, the Company engaged a person it believed was an independent mining
consultant. In 1996, the consultant claimed the Company liable for unpaid
services and expenses totaling approximately $78,440. The Company believes the
consultant did not provide the services contracted, usurped business
opportunities, and tortuously interfered with the Company. No litigation has
been filed to date and the Company is still assessing damages it incurred as a
result of the consultant's conduct. An evaluation as to the outcome of this
matter cannot be made at this time.
F-19
MMMC and Silver Bar Mining Prospect
-----------------------------------
During 1994, a corporation owned by an officer (and former president) of the
Company conducted negotiations with Mineral Mountain Mining Co. ('MMMC') to
acquire a 46% equity interest in MMMC, the owner of the Silver Bar Mine located
near Apache Junction, Arizona. As a result of the foregoing, a letter of intent
was entered into with MMMC. The rights and obligations pursuant to the letter of
intent were assigned to the Company. The purchase price of the 50% equity
interest was to be $1.2 million cash and a $4.3 million loan at two percent over
the prime rate. The letter of intent also provided an option to acquire an
additional four percent equity in MMMC for nominal amounts upon certain
conditions. In partial performance and pursuant to the negotiations, the Company
advanced $10,000 to MMMC in 1994.
In 1995, the Company continued negotiations with MMMC in attempts to conclude
the stock purchase agreement, advancing an additional $68,000 to MMMC (for
cumulative advances of $78,000).
Principals of MMMC subsequently refused to execute or acknowledge the agreement.
January 18, 1996, the Company filed suit against MMMC and two of its principals
for breach of the joint venture agreement. Accordingly, the $78,000 in advances
to MMMC was written off in the 1995 financial statements. The case subsequently
settled for $20,000; however, defendants have failed to comply with the
settlement agreement, and the matter is pending before the court for
disposition. Litigation is subject to many uncertainties and the Company is
unable to predict the outcome of this matter.
Obligations to Bolivian Mining Cooperative
------------------------------------------
The November 11, 1996 mining agreement with the United Cangalli Gold Mining
Cooperative, Ltd. ('UCL') provides for a gross royalty interest of 18% in gold
production to UCL and commits the Company to invest a minimum of $3 million in
the Cangalli prospect. In addition, the Company is obligated to pay UCL
$200,000: $100,000 for prospect acquisition rights and $100,000 for advance
royalties. As of December 31, 1997, the $100,000 acquisition rights and $71,914
of the advance royalties had been paid. Subsequent to December 31, 1997, the
balance of the advance royalties was paid. (See Note A.)
Obligations to Issue Common Stock to Advisors (see below and Note H)
--------------------------------------------------------------------
The Company is obligated to issue common stock to financial and public relations
advisors for services. The public relations obligation is pursuant to agreements
dated October 29, 1997 and effective August 1, 1997, with two individuals at
$7,000 each per month, as determined by the average first three days trading
price for the quarter. In the event the stock certificates are not issued within
15 calendar days of the quarter additional shares equal to five percent per
month shall be issued. The agreements are for six-month term's automatically
renewable for an additional six months unless either party objects in writing
within 30 days. In 1997, a total of 409,732 shares were issued and in 1998
through October 31, 1998 an additional 864,524 shares have been issued.
F-20
--------------------------------------------------------------------------------
Golden Eagle International, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Office Leases
-------------
July 1, 1997, the Company entered into a five-year office lease in La Paz,
Bolivia at $1,666 per month. The office previously was leased on a month-to
month basis at $1,500 per month. Rental expense paid for the office was $18,996
and $16,850 in 1997 and 1996, respectively. Future minimum lease payments are as
follows:
Year ended December 31,
1998 $ 19,992
1999 19,992
2000 19,992
2001 19,992
2002 9,996
---------
$ 89,964
=========
The Company also leases an executive suite in Denver, Colorado on a month-to
month basis at $188 per month.
Note H - Events Subsequent to December 31, 1997 (Unaudited)
1998 Operations
---------------
During 1998, the Company has been unable to conduct significant operations
because of adverse weather conditions in Bolivia (the so-called El Nino
phenomenon) and due to substantial working capital shortages.
Extension of Bank Note Payable
------------------------------
On June 1, 1998, the $1 million bank note payable due June 1, 1998 was extended
for an additional year and required interest payments were changed from monthly
to quarterly effective July 1, 1998 (see Note C).
Sale of Common Stock to Investors
---------------------------------
In 1998, the Company has issued a total of 800,000 shares of common stock to
five individual investors for cash received through October 23, 1998, totaling
$80,000.
Convertible Debentures
----------------------
March 26, 1998, the Company issued a $250,000 ten percent Convertible Debenture
to a foreign corporation which is convertible to common stock at the lesser of
50% of the OTC Bulletin Board average closing bid price for three days prior to
notice or $.16 per share (see Note C). The Debenture requires quarterly interest
F-21
--------------------------------------------------------------------------------
Golden Eagle International, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
payments beginning June 30, 1998 and was due June 30, 1998. As of October 14,
1998, $125,000 of the Debenture had been funded. On October 15, 1998, the
Debenture holder and the Company agreed to conversion of the $125,000 debenture
plus accrued interest and penalty totaling $35,000 into 2,560,000 shares of
common stock at a conversion rate of $.0625. In addition, the Company agreed to
file a registration statement covering the issued shares within 90 days and
granted the holder the right to purchase up to $200,000 of stock within 30 days
of the effectiveness of the registration statement in the event additional
securities are registered.
During 1998, all outstanding debentures as of December 31, 1997 and accrued
interest of $7,302 were converted into 5,836,268 shares of common stock (see
Note E).
Shareholder Loans and Obligations to Issue Common Stock
-------------------------------------------------------
Through October 20, 1998, a total of $367,754 had been borrowed on an unsecured
basis from a Bolivian consulting engineering firm at 15% per annum. In addition,
the same consulting firm paid a financial advisor with 666,666 shares of the
Company's common stock for 1998 services provided by the advisor on behalf of
the Company. As consideration for the transfer of stock, the Company is
obligated to issue 999,999 shares of common stock to the consulting firm prior
to January 1, 1999.
A significant shareholder paid two financial advisors and an investor relations
firm a total of 450,000 shares of the Company's common stock for 1998 services.
As consideration for the transfer of stock, the Company is obligated to issue
675,000 shares of common stock to the shareholder prior to January 1, 1999.
Issuance of Common Stock to Advisors
------------------------------------
In October 1998, the Company formalized agreements to issue a total of 1.5
million shares of common stock to two financial advisors as compensation for
identification of prospective investors in 1998 and January 1999. One million of
these shares are to be issued immediately and 200,000 shares are to be issued
October 31, 1998 and January 31, 1999. The agreements also provide the advisors
the right (but not the obligation) to purchase up to $100,000 of privately
offered securities.
From January through October 1998, the Company became obligated to issue a total
of 864,524 shares of common stock to two public relations advisors for services
(see Note G).
F-22
--------------------------------------------------------------------------------
Golden Eagle International, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Grant of Stock Options to Officers
----------------------------------
On October 20, 1998, the Company granted options, covering 25 million shares of
common stock to two officers at an exercise price of $.16 per share until
November 1, 2001; 15 million of the options vest immediately and 10 million on
November 1, 1999.
Other Related Party Transactions
--------------------------------
In January 1998, a vehicle acquired in 1997 for stock valued at $35,000 (see
Note B) was sold to the Company's president at its estimated fair value,
$27,575. From January through October 1998, relatives of an officer (and former
president) loaned the Company approximately $159,000 and were repaid $47,000. In
addition, the officer (and former president) was repaid $9,300 of out-of pocket
expenses, which had been accrued at December 31, 1997. (See Notes C and F.)
F-23
--------------------------------------------------------------------------------
<ARTICLE> 5
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 72,157
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 86,761
<PP&E> 1,054,258
<DEPRECIATION> 70,389
<TOTAL-ASSETS> 1,181,319
<CURRENT-LIABILITIES> 2,219,616
<BONDS> 1,000,000
<PREFERRED-MANDATORY> 0
<PREFERRED> 0
<COMMON> 9,534
<OTHER-SE> (2,047,831)
<TOTAL-LIABILITY-AND-EQUITY> 1,181,319
<SALES> 101,459
<TOTAL-REVENUES> 101,459
<CGS> 0
<TOTAL-COSTS> 2,524,710
<OTHER-EXPENSES> 3,356,099
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 184,204
<INCOME-PRETAX> (5,963,554)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,963,554)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,963,554)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
--------------------------------------------------------------------------------
|
