U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 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) 332-7734
-------------------------
(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 August 10, 2002
------ ------------------------------------
Common Stock, $.00001 par value 15,213,405
Transitional Small Business Disclosure Format (check one)
Yes No X
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS 2
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS 3
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS 4
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 10
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 16
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 21
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 22
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 22
ITEM 5. OTHER INFORMATION 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 22
SIGNATURES 23
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
-----------------------------
VEGA-ATLANTIC CORPORATION
(AN EXPLORATION STAGE COMPANY)
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
(Unaudited)
CONSOLIDATED BALANCE SHEETS
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1
VEGA-ATLANTIC CORPORATION
(An Exploration Stage Company)
CONSOLIDATED BALANCE SHEETS
June 30, March 31,
2002 2002
----------- -----------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 250 $ 1,196
----------- -----------
$ 250 $ 1,196
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 61,553 $ 88,588
Advances from related parties (Note 4) 444,560 367,381
----------- -----------
506,113 455,969
----------- -----------
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
Deficit accumulated during the exploration stage (9,873,788) (9,822,698)
----------- -----------
Total stockholders' equity (deficit) (505,863) (454,773)
----------- -----------
$ 250 $ 1,196
=========== ===========
CONTINGENCIES (Note 1)
The accompanying notes are an integral part of these interim consolidated financial statements
VEGA-ATLANTIC CORPORATION
(An Exploration Stage Company)
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
January 28,
Three months Three months 1987
ended June ended (inception)
30, 2002 June 30, 2001 to June 30, 2002
------------ ------------ ----------------
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 -- -- 132,751
Directors' fees -- 4,500 49,500
Office and general 30,046 61,029 3,543,467
Interest expense 9,484 10,145 233,408
Professional fees 11,560 23,643 309,515
Stock-based compensation -- -- 262,247
Gain on settlement of debt -- -- (66,267)
Gain on sale of joint venture interest -- (50,000) (69,318)
------------ ------------ ------------
51,090 49,317 4,395,303
------------ ------------ ------------
LOSS BEFORE THE FOLLOWING (51,090) (49,317) (6,569,308)
Gain on settlement of lawsuit -- -- 657,066
Loss on settlement of convertible promissory notes -- -- (1,754,917)
------------ ------------ ------------
LOSS FROM CONTINUING OPERATIONS (51,090) (49,317) (7,667,159)
DISCONTINUED OPERATIONS
Loss from discontinued operations of Century Manufacturing, Inc. -- -- (2,206,629)
------------ ------------ ------------
NET LOSS FOR THE PERIOD $ (51,090) $ (49,317) $ (9,873,788)
============ ============ ============
BASIC LOSS PER SHARE $ (0.00) $ (0.00)
============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 15,213,405 14,588,405
============ ============
The accompanying notes are an integral part of these interim consolidated financial statements
VEGA-ATLANTIC CORPORATION
(An Exploration Stage Company)
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
January 28,
Three months Three months 1987
ended June 30, ended June 30, (inception) to
2002 2001 June 30, 2002
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period $ (51,090) $ (49,317) $(9,873,788)
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 -- -- (651,316)
- gain on sale of joint venture interest -- -- (50,000)
- net changes in working capital items (27,035) 67,121 365,566
----------- ----------- -----------
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES (78,125) 17,804 (4,382,356)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from related parties - net 77,179 (17,183) 1,599,151
Interest paid -- -- (1,433)
Convertible notes -- -- 99,500
Sale of common stock -- -- 3,357,000
----------- ----------- -----------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES 77,179 (17,183) 5,054,218
----------- ----------- -----------
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 (946) 621 250
CASH, BEGINNING OF PERIOD 1,196 1,442 --
----------- ----------- -----------
CASH, END OF PERIOD $ 250 $ 2,063 $ 250
=========== =========== ===========
The accompanying notes are an integral part of these interim consolidated financial statements
VEGA-ATLANTIC CORPORATION
(An Exploration Stage Company)
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
JUNE 30, 2002
(Unaudited)
NOTE 1: NATURE AND CONTINUANCE OF OPERATIONS
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. Refer to Note 3.
At June 30, 2002, the Company had a working capital deficiency of $505,863 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 three
months ended June 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 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 was 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.
Net 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 reflect
the potential dilution of securities that could share in the earnings of the
Company. The accompanying presentation is only of basic loss per share as the
potentially dilutive factors are anti-dilutive to basic loss per share.
VEGA-ATLANTIC CORPORATION
(An Exploration Stage Company)
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
JUNE 30, 2002
(Unaudited)
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (con't)
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 June 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.
NOTE 4: RELATED PARTY TRANSACTIONS
During the period ended June 30, 2002 the Company incurred managerial,
administrative and investor relation services of $59,550 (2001 - $60,050) 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 $3,500 during the period
ended June 30, 2002 (2001 - $3,400). At June 30, 2002 ICI had made net cash
advances of $4,715 (2001 - $3,317). At June 30, 2002 $315,393 plus $30,809
accrued interest is owed to ICI (2001 - $188,153 plus $7,749 accrued interest).
In addition, at June 30, 2002 $92,985 plus $5,373 accrued interest is owing to
certain shareholders for cash advances (2001 - $65,766). These are unsecured and
without any terms of repayment.
VEGA-ATLANTIC CORPORATION
(An Exploration Stage Company)
NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
JUNE 30, 2002
(Unaudited)
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 Inc. 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 Resources, Inc. 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 has initiated legal
proceedings against Golden Thunder and Tun Resources for breaches of the
Acquisition Agreement and other causes of action, and seeks damages of in excess
of $800,000. Golden Thunder and Tun Resources have 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. The outcome of these legal proceedings is presently not
determinable.
NOTE 6: INCOME TAXES
As at June 30, 2002 the Company has net operating loss carryforwards of
approximately $1,460,000 which result in deferred tax assets. The carryforwards
will expire, it not utilized, between 2008 and 20018. Management believes that
the realization of the benefits from these deferred tax assets appears uncertain
due to the Company's history of operating losses. Accordingly, a full deferred
tax asset valuation allowance has been provided and no deferred tax asset
benefit has been recorded.
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").
As of the date of this Quarterly Report, the Letter Offer has been
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. See "Part II. Item 1. Legal Proceedings" for further
disclosure.
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.
Due to the ongoing litigation involving Golden Thunder and Tun Resources,
management of the Company at this time 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 a
diversified international resources exploration, development and production
program. Management intends to focus the Company's business activities on
resource-based diversification to other commodities and opportunities under
consideration and evaluation. Management believes that it is in the best
interests of the Company to diversify the Company's business activities to avoid
reliance on a single commodity. In addition, activities in China have been
difficult to attract investment to fund exploration and development of
initiatives; various divestitures have resulted.
RESULTS OF OPERATION
Three-Month Period Ended June 30, 2002 Compared to Three-Month Period Ended June
30, 2001
The Company's net loss for the three-month period ended June 30, 2002 was
approximately $51,090 compared to a net loss of approximately $49,317 for the
three-month period ended June 30, 2001.
During the three-month periods ended June 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 three-month period ended June 30, 2002, the Company recorded
general and administrative expenses of approximately $51,090 compared to general
and administrative expenses of approximately $99,317 incurred during the
three-month period ended June 30, 2001 (a decrease of $48,227). Although the
Company actually incurred $99,317 of general and administrative expenses during
the three-month period ended June 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, resulting in a net loss of
$49,317. The decrease in general and administrative expenses during the
three-month period ended June 30, 2002 compared to the three-month period ended
June 30, 2001 was primarily due to a recovery of expenses of $21,879 and
decrease in office and general expenses and in professional fees, which related
to the scale and scope of overall business activity during such period.
During the three-month period ended June 30, 2002, the Company's general
and administrative expenses consisted of: (i) $30,046 in office and general
expenses; (ii) $11,560 in professional fees; and (iii) $9,484 in interest
expense. During the three-month period ended June 30, 2001, the Company's
general and administrative expenses consisted of (i) $61,029 in office and
general expenses; (ii) $23,643 in professional fees; (iii) $10,145 in interest
expense; and (iv) $4,500 in directors' fees. General and administrative expenses
generally include corporate overhead, financial and administrative contracted
services, consulting costs and professional fees.
Of the $51,090 incurred as general and administrative expenses, the Company
incurred to Investor Communications International, Inc. ("ICI") approximately
(i) $59,550 for amounts due and owing for managerial, administrative and
financial services rendered by ICI; and (ii) $4,715 for net cash advances made
by ICI. This resulted in an aggregate of $315,393 plus $30,809 in accrued
interest due and owing ICI during the three-month period ended June 30, 2002.
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 three-month period
ended June 30, 2002, Mr. Grant Atkins received from ICI approximately $3,500 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) investor relations and 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
three-month period ended June 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 involve the negotiation and due diligence of the Letter Agreement relating
to the Ailaoshan joint venture and other possible joint venture projects.
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 of short-term
advance financing and sourcing of private placement funding.
As discussed above, the increase in net loss during the three-month period
ended June 30, 2002 as compared to the net loss incurred during the three-month
period ended June 30, 2001 is attributable primarily to the gain of $50,000 on
the sale of the joint venture interest realized during the three-month period
ended June 30, 2001. The Company's net loss during the three-month period ended
June 30, 2002 was approximately ($51,090) or ($0.00) per common share compared
to a net loss of approximately ($49,317) or ($0.00) per common share during the
three-month period ended June 30, 2001. The weighted average number of shares
outstanding were 15,213,405 for the three-month period ended June 30, 2002
compared to 14,588,405 for the three-month period ended June 30, 2001 (which
were restated to take into account the reverse stock split of 4 to 1).
LIQUIDITY AND CAPITAL RESOURCES
For Three-Month Period Ended June 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 $1,000,000 of
financing designed to fund various commitments and 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 its ability
to successfully litigate its claims against Tun Resources and Golden Thunder and
to obtain advances from certain investors and related parties, as necessary.
As of June 30, 2002, the Company's current assets were $250 and its current
liabilities were $506,113. As of June 30, 2002, the current liabilities exceeded
current assets by $505,863. 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 increase in current liabilities during the three-month period ended
June 30, 2002 from fiscal year ended March 31, 2002 was due primarily to an
increase in advances payable to related parties.
Stockholders' deficit increased from ($454,773) for fiscal year ended March
31, 2002 to ($505,863) for the three-month period ended June 30, 2002.
The Company has not generated positive cash flows from operating
activities. For the three-month period ended June 30, 2002, net cash used in
operating activities was ($78,125) compared to $17,804 of net cash from
operating activities for the three-month period June 30, 2001. As noted above,
the decrease was comprised of net changes in working capital items of ($27,035)
during the three-month period ended June 30, 2002 compared to net changes in
working capital items of $67,121 for the three-month period ended June 30, 2001.
Net cash flows from financing activities during the three-month period was
$77,179 resulting primarily from advances from related parties compared to net
cash flows used in financing activities of ($17,183) during the three-month
period ended June 30, 2001.
Net cash flows from investing activities were $-0- during the three-month
periods ended June 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. The Company alleges in its 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 alleges in its 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
alleges in its 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 is seeking 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 alleges 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.
As of the date of this Quarterly Report, there is a pending settlement
agreement between the parties which at a future date may or may not provide for
full satisfaction of the claims of the Company. Management intends to
aggressively pursue all such legal actions and review further legal remedies
against Golden Thunder and Tun Resources.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
No report required.
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
Exhibit 99.1 Certification Pursuant to 18 U.S.C. Section 1350.
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: August 12, 2002 By: /s/ Grant Atkins
---------------------------------
Grant Atkins, President and Chief
Executive Officer
Dated: August 12, 2002 By: /s/ Herb Ackerman
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Herb Ackerman, Secretary