10-Q 1 jab-10q_03312001.txt QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: March 31, 2001 [_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from __________________ to _______________________ Commission file number: 000-12761 J.A.B. INTERNATIONAL, INC. ------------------------------------------------------ (Exact name of small business issuer as specified in its charter) NEVADA 88-0180496 ------------------------------ --------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification Number) 1013 Fairway Drive, Winter Park, Florida 32792 -------------------------------------- (Address of principal executive offices) (407) 629-7373 ---------------------------------------------- (Issuer's telephone number, including area code) Brush Creek Mining and Development Co., Inc. ----------------------------------------------------------- Former name, former address or former fiscal year, if changed since last report.) APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Check whether the Registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes [X} No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: Transitional Small Business Disclosure Format (Check one): Yes [_] No [_] Part I - FINANCIAL INFORMATION Item 1. Financial Statements. The accompanying interim unaudited financial statements have been prepared in accordance with the instructions to Form 10-QSB and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included, and the disclosures are adequate to make the information presented not misleading. Operating results for the nine months ended March 31, 2001, are not necessarily indicative of the results that may be expected for the year ended June 30, 2001. These statements should be read in conjunction with the financial statements and notes thereto included in the Annual Report on Form 10-KSB (filed with the Securities and Exchange Commission) for the year ended June 30, 2000. J.A.B. INTERNATIONAL, INC. Financial Statements Table of Contents FINANCIAL STATEMENTS Page # Balance Sheet ......................................................F-1 Statements of Operations............................................F-2 Statement of Stockholders' Equity...................................F-4 Cash Flow Statements...............................................F-11 Notes to the Financial Statements..................................F-13

The accompanying notes are an integral part of these consolidated financial statements. F-1

(Note: weighted averages are adjusted for 3 for 1 split during 2001 and a reverse stock split during 1999) The accompanying notes are an integral part of these consolidated financial statements. F-2

The accompanying notes are an integral part of these consolidated financial statements. F-3

The accompanying notes are an integral part of these consolidated financial statements. F-4

The accompanying notes are an integral part of these consolidated financial statements. F-5

The accompanying notes are an integral part of these consolidated financial statements. F-6

The accompanying notes are an integral part of these consolidated financial statements. F-7

The accompanying notes are an integral part of these consolidated financial statements. F-8

The accompanying notes are an integral part of these consolidated financial statements. F-9

The accompanying notes are an integral part of these consolidated financial statements. F-10

The accompanying notes are an integral part of these consolidated financial statements. F-11

The accompanying notes are an integral part of these consolidated financial statements. F-12 J.A.B. INTERNATIONAL, INC. Notes to Financial Statements (Information with Respect to the Nine Months Ended March 31, 2001 and 1999 is Unaudited) NOTE 1 - OPERATIONS AND BASIS OF PRESENTATION ---------------------------------------- J.A.B. International, Inc. (the Company) formerly known as Brush Creek Mining and Development Company, Inc. was incorporated in 1982 and operated as a mining and mineral development company until April 17, 1989, at which time its mining operations, all of which had been conducted through the Brush Creek Joint Venture (BCJV) (40% owned) were terminated. Shortly thereafter, the Company became actively engaged in acquiring additional mineral properties, raising capital, and preparing properties for resumed production. The Company did not have any significant operations or activities from April 17, 1989 through June 30, 1989 and suspended all mining operations and reduced its activities to a care and maintenance level. Accordingly, the Company is deemed to have reentered the development stage effective July 1, 1989. In February 1992, the Company began limited production at the Ruby Mine under a permit that limited mill capacity to 225 tons per day. Production was terminated due to adverse weather conditions in December 1992. The Company resumed limited production at the Ruby Mine in July 1993 and gradually increased production until October 1996 when production was suspended. In early 1997, the Company began preparing the lower Brush Creek Mine for limited production. In June 1997, the Company received interim approval from the United States Forest Service to transport thirty tons of ore per day from the lower Brush Creek Mine to the Ruby mill site. Some of the Company's leases have been defaulted upon and are therefore at risk. See footnotes 5 and 11. The Company has not commenced economic production and is therefore still considered to be in the development stage. The Company's financial statements have been presented on the basis that it is a going concern, which contemplates the realization of the mineral properties and other assets and the satisfaction of liabilities in the normal course of business. The Company has incurred losses of $59,146,084 from inception to June 30, 2000. The Company has not realized economic production from its mineral properties as of June 30, 2000. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management continues to actively seek additional sources of capital to fund current and future operations. There is no assurance that the Company will be successful in continuing to raise additional capital, establishing probable or proven ore reserves, or determining if the mineral properties can be mined economically. Additionally, the Company is in default on the leases of certain of its mining properties. The lessors have taken action to foreclose on the leases and the Company is making every effort to fulfill the agreements. The loss of these leases would have a material adverse effect on the Company. These financial statements do not include any adjustments that might result from the outcome of these uncertainties. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ---------------------------------------------- Use of Estimates - ------------------ The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, and disclosure of contingent liabilities at the date of the financial statements, and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those results. F-13 Mineral Properties and Mining Equipment - ------------------------------------------- Mineral properties and mining equipment include land (and in prior years development costs) and mining equipment carried at cost. Mining equipment including mill facilities is depreciated using the straight-line method over estimated useful lives of 5 to 15 years, or the units-of-production method based on estimated tons of ore reserves if the equipment is located at a producing property with a shorter economic life. Mining equipment not in service is not depreciated. In the past, the Company deferred direct costs related to the acquisition, exploration and development of mineral properties pending determination of their economic viability which normally entails performing an in-depth geological and geophysical study. If no minable ore body was discovered, previously capitalized costs were expensed in the period the property was abandoned. Any revenue generated from pre-production activities was offset against the related deferred development and pre-production costs. When a property was placed in commercial production, such deferred costs were depleted using the units-of-production method. During 1997, the Securities and Exchange Commission (SEC) staff reconsidered existing accounting practices for mineral expenditures by United States junior mining companies. They now interpret generally accepted accounting policy for junior mining companies to permit capitalization of acquisition, exploration and development costs only after persuasive engineering evidence is obtained to support recoverability of these costs (ideally upon determination of proven and/or probable reserves based upon dense drilling samples and feasibility studies by a recognized independent engineer). Although the Company has performed drilling samples, and an independent engineer has deemed the gold properties contain profitable reserves in excess of property and equipment costs incurred, management has chosen to follow the more conservative method of accounting by expending the previously capitalized gold mineral costs, for which there is no feasibility study. Land Options - ------------- In prior years it was the Company's policy to record land options at cost during the initial year of the lease on the mining properties. As noted above, since the Company interprets generally accepted accounting policies to permit capitalization of acquisition costs including leases and land options only after persuasive engineering evidence has been obtained to support recoverability of these costs, these costs will now be expensed, effective July 1, 1996. Asset Impairment - ----------------- In accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," (SFAS 121), management of the Company reviews the net carrying value of the Northern California mines and development properties on a regular quarterly basis. Estimated future net cash flows from each mine are calculated using estimated future prices, operating capital, and reclamation costs on an undescended basis. Reductions in the carrying value of each mine are recorded to the extent the net book value of the investment exceeds the estimate of future discounted net cash flows. The recoverability of the carrying value of development projects is evaluated based upon persuasive engineering evidence of estimated future net cash flows from each property, determined as described above, using estimates of contained mineralization expected to be classified as proven and/or probable reserves upon completion of a feasibility study. Reductions in the carrying value of each property are recorded to the extent that the Company's carrying value in each property exceeds management's estimate of future discounted net cash flows. When mining equipment is idle, management decides if it will be used productively in the future. For idle equipment that is unique to an abandoned or impaired property, the Company reduces its carrying value following the impairment accounting principle. Management's estimates of gold prices, recoverable proven and probable reserves, operating capital, and reclamation costs are subject to certain risks and uncertainties which may affect the recoverability of the Company's investment in property, plant, and equipment. Although management has made its best estimate of these factors based on current conditions, it is reasonably possible that changes could occur in the near term which could adversely affect management's estimate of the net cash flow expected to be generated from its operations. F-14 Office Furniture and Equipment - --------------------------------- Office furniture and equipment are recorded at cost. Depreciation is computed by the straight-line method based upon the estimated useful lives of the respective assets, generally three to five years. Income (Loss) per Common Stock - ---------------------------------- Income (loss) per share of common stock is computed based on the weighted average number of shares outstanding. Warrants, options and convertible debentures have not been included in the calculation as their effect would be anti-dilutive. All common shares included in the financial statements reflect a reverse stock split of 1:12, which the Board of Directors approved and was effective as of April 13, 1999. Reclamation and Environmental Costs - -------------------------------------- Reclamation costs and related accruals are based on the Company's interpretation of environmental and regulatory requirements. Minimum standards for mine reclamation have been established by various governmental agencies. Reclamation, site restoration, and closure costs for each producing mine are accrued over the life of the mine using the units-of-production method. Ongoing reclamation activities are expensed in the period incurred. Income Taxes - ------------- The Company accounts for income taxes using the liability method which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Inventory - --------- Gold inventory is stated at net realizable value. Stock Based Compensation - -------------------------- In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," (SFAS 123), which is effective for periods beginning after December 15, 1995. SFAS 123 requires that companies either recognize compensation expense for grants of stock, stock options, and other equity instruments based on fair value or provide proforma disclosure of the effect on net income and earnings per share in the Notes to the Financial Statements. The Company intends to continue to account for its stock-based compensation under Accounting Principles Board No. 25; however, the Company has adopted the disclosure provisions of SFAS 123 for the fiscal year ended June 30, 1998. Cash and Cash Equivalents - ---------------------------- For purposes of reporting cash flows, cash and cash equivalents include highly liquid debt instruments purchased with a maturity of three months or less. F-15 Earnings Per Share - -------------------- In February 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per Share", which was adopted by the Company for the year ended June 30, 1997. SFAS 128 replaces the presentation of primary earnings per share with a presentation of basic earnings per share based upon the weighted average number of common shares for the period. Leases - ------ The Company leases office space and mining properties under operating leases. All of the Company's leased mining properties contain certain provisions which provide the Company with the option to purchase the property at a predetermined price or to renew the lease at a predetermined price. The Company is required to pay all taxes, insurance, and maintenance on leased mining properties. New Accounting Pronouncements - ------------------------------- In June 1997, the FASB issued Statement of Financial Accounting Standards No. 130 (SFAS 130), Reporting Comprehensive Income. This statement requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. SFAS 130 will be adopted by the Company for the year ended December 31, 1998. Prior period financial statements provided for comparative purposes will be reclassified, as required. Upon adoption, the Company does not expect SFAS 130 to have a material effect upon the Company's financial condition or results of operations. In June 1997, the FASB issued Statements of Financial Accounting Standards No. 131 (SFAS 131), Disclosures about Segments of an Enterprise and Related Information. The statement requires the Company to report income/loss, revenue, expense and assets by business segment including information regarding the revenues derived from specific products and services and about the countries in which the Company is operating. The Statement also requires that the Company report descriptive information about the way that operating segments were determined, the products and services provided by the operating segments, differences between the measurements used in reporting segment information and those used in the Company's general-purpose financial statements, and changes in the measurement of segment amounts from period to period. SFAS 131 has been adopted by the Company for the year ended December 31, 1998. This statement has no effect on financial statements traditionally presented by the Company, but increases required disclosures. NOTE 3 - AFFILIATES AND RELATED PARTIES --------------------------------- Significant relationships with (1) companies affiliated through common ownership and/or management, and (2) other related parties are as follows: The Company has Joint ownership in the "Esperanza Gold Project". See Footnote #5 for a description of this Project and the joint ownership. NOTE 4 - OFFICE FURNITURE AND EQUIPMENT --------------------------------- Office furniture and equipment have been written-off as a loss as the items were reposessed, bartered, claimed or abandoned during the year ended June 30, 1999. The Company shall reinstate any property that is recovered if the Company satisfies amounts that it is in default. See footnotes 6,7 and 12 regarding commitments and contingencies with regard to the Company's property. F-16 NOTE 5 - MINERAL PROPERTIES AND MINING EQUIPMENT ------------------------------------------- The Company's net investment in mineral properties and mining equipment is as follows:

(*) Note that the Company no longer holds a lease on Ruby Mine. The equipment on the property remains with the former lessor. The Company hopes to renegotiate a lease or purchase the property at which time equipment may or may not be returned. Equipment on other properties is either no longer on the properties or is obsolete. The Company owns or holds claims and rights to the above properties but has property taxes, maintenance fees and reclamation bonds outstanding with regard to its California properties. Those amounts have been included in accounts payable. All of the Company's mineral properties in the U.S. contain mines which were in production previously. All such mines, except for the Esperanza Gold Project and Vocar S.A.R.L. Permits, Gardners's Point and Pioneer Mines are located in the Allegheny-Forest-Downieville mining districts on the western slope of the Sierra Nevada mountain range in Northern California and aggregate approximately 6,300 acres. Because of the close proximity of the mines to each other, the Company plans to centralize milling operations. The Gardner's Point and Pioneer Mines are located outside this district and management has been evaluating alternatives to placing them into current production. The Esparanza Gold Project is located in Southeastern Honduras. The VOCAR S.A.R.L. mining permits are located in the Central African Republic. Current developments and commitments related to certain properties follow: Reverse Merger between Brushcreek Mining & Development Company and J.A.B. International, Inc. - ------------------- On April 14, 1999 the Company completed a merger whereby it obtained two properties. The company obtained a Central African Republic registered company named VOCAR S.A.R.L. which holds a the permits to a mining concession located in the Southeastern section of the country. This company was formed in 1987 by Robert Hendry, Esq. And Harold McQuire in 1994 and purchased by the Company in 1994. The permits for the mining property were granted in November of 1995 and are in VOCAR S.A.R.L. and the Company's name. The permits require a maintenance fee of $5,000 every 5 years, of which no fees are outstanding. The permits require that the Company pay an import tax on mining equipment of various amounts and an export tax on minerals at 8.25% of the value in the F-17 Central African Republic. The mining area is 3,500 square kilometers in size with one major river with tributaries. The Company has initiated test pits to determine the recoverability of diamonds and gold. A full geological and engineering report is planned. In addition to this property, the Company acquired the "Esperanza Gold Project" from the Esperanza Mining Company in 1997. 80% of the Esperanza Mining Company was purchased with 50,000 common shares of the Company's stock and an agreement to pay a 3% net smelter royalty. Through additional agreements, the Company has issued an additional 100,000 common shares of the Company's stock. The mining company was formed in the US by 3 Honduran natives who owned the property. The property is roughly 49,000 acres located in the North Central part of Honduras. Only minor exploration has taken place to date. A full geological and engineering report is planed. The Honduran Government changed the mining laws during the year 2000 whereby the Company had its law firm in Tegucigalpa file papers with the bureau of mines to keep current. The Company is responsible for filing a Mining Plan of Operations with the Government in order stay in compliance with the new law. NOTE 6 - DEMAND NOTE PAYABLE AND LINES OF CREDIT -------------------------------------------- On February 1, 2001, the Company entered into a 120 day note payable for $12,000 with an interest rate of 15% for the 120 day period. Principal and interest were due at the end of the term. The Company will extend the due date until such time that alternative financing becomes available. The Company had a demand note payable in the amount of $57,017 with no interest that was converted to 174,209 common shares of stock during fiscal 2000. The amounts were loaned during fiscal year 1999. No unused lines of credit exist. NOTE 7 - INCOME TAXES ------------- At September 30, 2000, the Company had available net operating loss carryforwards for financial statement and federal income tax purposes. These loss carryforwards expire between 2001 and 2020. The Company has reported income tax losses of approximately $58,500,000 in prior years. In general, income tax losses are carried forward to future years to reduce future income taxes, however, the full amount of these losses is not available or has been reduced. The Company's management has decided a valuation allowance is necessary to reduce any tax benefits because the available benefits are more likely than not to expire before they can be used. NOTE 8 - SHAREHOLDERS' EQUITY --------------------- During fiscal 2001, the following major equity transactions occurred: The Company undertook a three for one stock split during the third quarter of fiscal 2001. The earnings per share calculation has been retroactively adjusted in consideration of this split. The Company issued 1,700,000 common shares for services provided to the Company at a value of $51,000. The President of the Company received 1,000,000 of the 1,700,000 shares issued per his compensation agreement with the Company. These shares were issued prior to the three for one stock split listed above. During fiscal 2000, the following major equity transactions occurred: F-18 The Company undertook an S-8 registration for the issuance of 1,330,000 common shares with a value of $987,500 during the first quarter of the year. The shares issued were used to reduce accrued consulting expenses incurred during fiscal year 1999. The Company also issued 174,209 common shares with a value of $57,017 to convert a demand note payable to common stock. The Company sold 465,791 shares of common stock for $152,449 in cash during the fiscal year 2000. During fiscal 1999, the following major equity transactions occurred: On March 1, 1999 the Company issued 3,730,861 common shares valued at $894,287 to Jefferson Adams Bootes for services as a Director of the Company. After the issuance there were 9,235,040 shares issued and outstanding. The Company offered a 1 for 12 reverse stock split on April 13, 1999 leaving 869,455 common shares issued and outstanding.. In an exchange of 3,580,000 common shares of the Company's stock on April 14, 1999, the Company executed a tax free reverse merger with a Florida corporation by the name of J.A.B. International, Inc. The merger was accounted for under the purchase method. The transaction was valued at the Company's par value. When a proper reserve study is completed of the acquired assets, the transaction will be revalued in accordance with industry standards. The assets transferred included VOCAR S.A.R.L., a company which holds permits to a mining concession located in the Southeastern section of the Central African Republic, and the Esperanza Gold Project, a 49,000 acre placer gold mine in Southeastern Honduras. At the time of merger the Company changed its name from Brush Creek Mining and Development Company, Inc. to J.A.B. International, Inc. The Florida corporation was then disolved leaving J.A.B. International, Inc., a Nevada corporation, the surviving company. After this merger, the Company had 4,449,455 shares issued and outstanding. During fiscal 1998, the following major equity transactions occurred: The Company effected a 10 for 1 reverse stock split. To effect the split, the Company's authorized, issued, and outstanding no par stock was reduced from 53,705,482 to 5,504,179. At year end, the Company shareholders' equity had increased 2,673,600 and is carried as subscribed common stock. The Company sold 1,867,131 shares of Common Stock for $2,224,599. These shares were sold pursuant to Regulation S of the Securities Act of 1933. The Company issued 500,000 shares of Common Stock with a value of $3,250,001. The shares were registered with the Securities and Exchange Commission on Form S-8. The following shares were sold under Regulation D and Section 4(2) of the Securities Act of 1933. Investors who acquires such shares were required to be accredited investors. The Company has agreed to register the shares pursuant to a registration statement to be filed with the Securities and Exchange Commission. The Company sold 600,000 restricted shares of Common Stock at $.125 per share wherein the Company received net proceeds of $75,000; 1,822,221 restricted shares of Common Stock at $.15 per share wherein the Company received net proceeds of $290,000; 4,300,000 restricted shares of Common Stock at $.07 per share wherein the Company received net proceeds of $301,000; 6,600,000 restricted shares of Common Stock at $.10 per share wherein the Company received net proceeds of $660,000; 670,000 restricted shares of Common Stock at $.50 per share wherein the Company received net proceeds of $335,000; 1,750,00 restricted shares of Common Stock at $.184 per share wherein the Company received net proceeds of $322,000; 60,000 restricted shares of Common Stock at $.50 per share wherein the Company received net proceeds of $30,000; 1,150,000 restricted shares of Common Stock at $.184 per share wherein the Company received net proceeds of $211,600. The Company sold 5,000,001 shares of Common Stock under Regulation S at $.65 per share wherein the Company received net proceeds of $3,250,000. During fiscal 1997, the following major equity transactions occurred: F-19 The Company sold 286,756 shares of Common Stock for $1,016,250. These shares were sold pursuant to Regulation S of the Securities Act of 1933. The Company issued 2,000 shares of Common Stock with a value of $5,200 in connection with its acquisition of the New California Placer Mine. The Company issued 16,500 shares of Common Stock with a value of $41,250. The shares were registered with the Securities and Exchange Commission on Form S-8. Shareholders' equity increased by $1,200,000 as shares issued in the prior year were used to settle the Zuri Invest litigation. See 100,000 shares below issued in 1996. The Company sold 360,001 restricted shares of Common Stock at $.0625 per share wherein the Company received net proceeds of $225,000; 660,000 restricted shares of Common Stock at $.07 per share wherein the Company received net proceeds of $460,600; 175,455 restricted shares of Common Stock at $.11 per share wherein the Company received net proceeds of $193,000; 140,000 restricted shares of Common Stock at $.125 per share wherein the Company received net proceeds of $175,000. All shares were sold under Regulation D and Section 4(2) of the Securities Act of 1933. Investors who acquired such shares were required to be accredited investors. The Company has agreed to register the shares pursuant to a registration statement to be filed with the Securities and Exchange Commission. During fiscal 1996, the following major equity transactions occurred: The Company sold 678,350 shares of Common Stock for $6,875,416. These shares were sold pursuant to Regulation S of the Securities Act of 1933. The Company issued 110,000 shares as partial settlement of the Zuri Invest litigation. These shares were held in trust by the adverse party. The stock was forfeited and was valued at fair market value on the forfeit date, i.e. the trading price. The Company issued 21,667 shares as partial settlement of the Royal Bank of Scotland litigation. During fiscal 1995, the following major equity transactions occurred: The Company sold 256,667 shares of Common Stock for $3,696,457. These shares were sold pursuant to Regulation S of the Securities Act of 1933. During fiscal 1994, the following major equity transactions occurred: The Company issued 21,510 shares of Common Stock in exchange for certain legal, engineering, consulting, and employment services rendered to the Company totaling $938,159.(*) The Company issued shares of the Company's Common Stock pursuant to a service agreement with James Anderson totaling $421,875. The Board of Directors of the Company approved a 15-for-1 reserve stock split effective November 29, 1993. During fiscal 1993, the following major equity transactions occurred: The Company issued 53,940 shares of Common Stock in connection with its acquisition of Trans-Russian. Total reduction in equity in relation to the acquisition was $84,176.(*) In connection with its mining properties, the Company issued 3,729 shares of Common Stock for accrued lease payments of $107,710, prepayment of certain lease expenses of $113,153, and acquisition of mining equipment of $34,375.(*) F-20 The Company issued 10,514 shares of Common Stock with a value of $713,494 in satisfaction of outstanding debt obligations amounting to $558,592.(*) The Company issued 10,026 shares of Common Stock with a value of $500,285 in satisfaction of the Company's obligation to CSGM of $574,750.(*) The Company issued 18,319 shares of Common Stock in exchange for certain legal, engineering, consulting, and employment services rendered to the Company totaling $1,616,659.(*) The Company sold 1,066 shares of stock at $7.50 per share, totaling $80,000. The Company issued 3,334 shares of Common Stock pursuant to the exercise of options in settlement of debt to CSGM of $250,000.(*) During fiscal 1992, the following major equity transactions occurred: The Company issued 15,534 shares of Common Stock in connection with its acquisition of Sierra Gold and the related options on mineral properties for $74,807.(*) The Company issued 1,031 shares of Common Stock in connection with its acquisition of the Kate-hardy Mine for $88,667 and prepayment of certain lease expenses of $66,000.(*) In connection with its lease on the Ruby Mine, the Company issued 2,480 shares of Common Stock for: accrued lease payments of $72,502, prepayment of lease obligation of $63,287, and modification and extension to lease term of $154,836.(*) In connection with its lease on the Rising Sun Mine, the Company issued 533 shares of Common Stock for accrued lease payments of $22,002, prepayment of lease obligation of $18,687, and modification and extension to lease term of $4,111.(*) The Company issued 2,444 shares of Common Stock in satisfaction of outstanding debt obligations amounting to $336,617.(*) The Company issued 88000 shares of Common Stock with a value of $748,750 to CSGM in satisfaction of the Company's obligation to CSGM of $900,000.(*) The Company issued 11,791 shares of Common Stock in exchange for certain legal, engineering, and employment services rendered to the Company totaling $1,286,852.(*) In May 1992, the Company entered into a three-year consulting contract with Mr. Anderson in exchange for issuing 6,667 shares of Common Stock with a value of $531,250.(*) Ms. Anderson paid expenses on behalf of the Company amounting to $105,055. This amount and the proceeds received from the extension of warrants of $207,750 totaling $312,805 is accounted for as a contribution of capital. The Company made several private placements of a total of 14,210 shares of its Common Stock at prices ranging from $.90 to $1.50 per share totaling $2,298,451, net of offering costs of $177,974. During fiscal 1991, the following major equity transactions occurred: On June 29, 1990, the Company sold 13,173 units for $987,955. Each unit consisted of one share of Common Stock and a warrant to purchase one share of Common Stock. The Company's previous chairman, Mr. Benarroch, is the president of the underwriter, Euro Canadian, in this transaction, which received a commission of $98,796. The underwriter also received warrants to purchase 3,334 shares of the Company's Common Stock at $.50 through July 1992. In July 1990, the Company sold an additional 14,161 units. The Company received $910,840 after offering F-21 expenses. Warrants covering 25,333 shares are exercisable at $.70 through June 1992, and warrants covering 2,000 shares are exercisable at $.90 through June 1992. On June 26, 1990, the Company's Board of Directors approved the issuance of 7,376 units to ISGM and CSGM in satisfaction of the Company's debt of $553,242 to these entities. Each unit consists of one share of the Company's Common Stock and one warrant to purchase one share of stock at $.50 per share, exercisable through July 1992. As of December 31, 1990, these units had not been delivered due to administrative delays. As an inducement to the approval of the consulting agreement described below, CSGM and ISGM agreed to cancel the units approved by the Board of Directors on June 26, 1990. On January 23, 1991, the Company entered into an agreement with CSGM and ISGM whereby CSGM and ISGM are obligated to render consulting services to the Company to assist the Company in the acquisition of mining properties, identification of and negotiation with the Company's creditors, and other day-to-day business and administrative tasks. In exchange for rendering consulting services, the Company agreed to issue 12,000 shares of its Common Stock to CSGM. As the market value of the shares issued was approximately equal to that of the units canceled, the issuance of the shares has been treated as a replacement of the units for accounting purposes.(*) In January 1991, an additional 4,927 shares of Common Stock were issued to third parties. These shares, valued at fair market value of $630,568, were issued for legal and consulting services rendered and the repayment of a note payable issued for services of $114,560.(*) The Company agreed to issue 2,000 shares of Common Stock valued at fair market value of $581,250 to an engineering firm for past and future services.(*) The Company entered into a litigation settlement with Mr. Benarroch, whereby 6,667 shares of the Company's outstanding Common Stock were returned to the Company and, simultaneously, the Company issued back to Mr. Benarroch 10,000 shares, valued at fair market value of $1.75 per share. The settlement resulted in a net issuance of 3,333 shares of Common Stock valued at $875,000.(*) During fiscal 1990, the Company initiated a private placement of its Common Stock. In April 1990, the Company sold 15,000 shares for $450,000. In March 1990, Ms. Anderson sold 6,667 shares of her Common Stock to Sungold Mining Corp. (Sungold) for $10,000 as an inducement for an affiliate of Sungold to lend the Company $140,000.(*) In March and May 1990, the Company issued 23,500 shares of Common Stock in exchange for legal services valued at $72,500.(*) (*) For each issuance involving noncash consideration, the Company recorded the fair market value of the shares issued as the consideration received. NOTE 9 - STOCK OPTIONS AND WARRANTS ----------------------------- Upon the merger that occurred on April 14, 1999, the Company cancelled all of its existing stock option agreements. NOTE 10 - COMMITMENTS AND CONTINGENCIES ------------------------------- Compensation Agreement: During March of 1999, the Company entered into a 5 year compensation agreement compensation agreement with Jefferson Adams Bootes, the President and CEO of the Company, whereby he is to receive compensation of $25,000 per month for his duties as President and CEO. F-22 Changes in management: Recent changes in management, as noted in footnote 18, have led to the contingency that all transaction and liabilities may not have been recorded in the Company's accounting records during fiscal year 1999. With the uncertainty of the Company's cash flows, the Company's management chose to satisfy liabilities that may or may not have been recorded with the bartering of company assets such as equipment. In addition, assets such as equipment have been claimed by lessors of property in which the Company is in default. The Company's management has inspected the mining locations for property and has written-off as an abandonment loss any assets not observed. In addition the Company's management has decided to leave accounts payable amount as being due if satisfaction has not been recorded in the Company's accounting records. At such time that the Company has funds to research these amounts as having been satisfied and possibly additional amounts due, the Company will determine the materiality of these amounts in order to determine if a prior period adjustment should be recorded and revised statements issued. Contingencies: The Company is currently in default of its lease payments on mining properties and the property taxes on these leases. The Company has also had judgements filed against it which have been accrued at $4,951,229. The Company may have additional suits brought against it in the future. Currently the Company is negotiating settlements, however, there is no assurance as to whether the Company will be successful in these negotiations. Judgements whereby a settlement agreement has been agreed to have been recorded at the minimum amount due. The additional judgement liability that the Company would record if a settlement was not in place is $5,850,000. The Company holds no leases for office space. The Company is currently accruing expense reimbursements for the Company president to retain all records for the Company. The Company's mining and exploration activities are subject to various federal and state laws and regulations governing the protection of the environment. These laws and regulations are continually changing and are generally becoming more restrictive. The Company conducts its operations so as to protect the public health and environment and believes its operations are not in compliance with all applicable laws and regulations. The Company has made, and expects to make in the future, expenditures to comply with such laws and regulations. The Company cannot predict such future expenditures. The Company contracted with an outside consultant to develop a cost estimate for future reclamation costs on the Gardner's Point Mine. This estimate was developed pursuant to SMARA guidelines and required for submission to the lead agency and the Department of Conservation as the Company develops a plan for future mining at this site. Future reclamation costs are estimated to be $380,000. Additional bonding for reclamation will be required subsequent to final approval estimated to be completed in May of 1998. As of this balance sheet date, a contingent liability for the amount of the new estimate which exceeds the liability accrued in prior years was not included in the Company's financial statements. Consistent with the Company's policy, as discussed in Note 1, reclamation costs are accrued over the life of the mine using the units-of-production method. Once the mine enters the production stage, should the end of the mine's production life become imminent, the entire estimated liability would be expensed. On April 1, 1997, the Company sold certain pieces of equipment with a net book value of $73,191 for $60,000 pursuant to a sale-leaseback agreement. The agreement required a single $90,000 payment on July 31, 1997 to reacquire title to the equipment. The Company did not make the $90,000 payment and defaulted on the agreement. Subsequent to the default, the Company made a $10,000 payment to continue to use the equipment. No additional agreements or modifications to the original agreement have been made. Due to the Company's default, the assets are not included on the books of the Company. F-23 NOTE 11 - LEGAL PROCEEDINGS ------------------ The Royal Bank Action. On December 13, 1995, the Company entered into an agreement (the "Royal Bank Agreement") to settle an action commenced by the Royal Bank of Scotland, et al. by delivering to the plaintiffs (the "Royal Bank Plaintiffs") 216,667 shares of the Company's Common Stock and cash in the amount of $241,000. The Company also assigned to the Royal Bank Plaintiffs a portion of its interest in any total recovery from claims against the law firm formerly known as Bartel, Eng, Miller & Torngren, the Company's formal legal counsel ("Bartel, Eng"). On December 13, 1996, the Company was further required to deliver to each of the Royal Bank Plaintiffs, at his or her option, additional shares of the Company's common stock or additional cash. The number of shares of Common Stock or the amount of cash each Royal Bank Plaintiff was entitled to receive was based on the amount of his or her pro rata interest in amounts paid by the Company pursuant to the Royal Bank Agreement. If all Royal Bank Plaintiffs elected to receive Common Stock, then the Company would have been required to issue and deliver a maximum of 300,000 shares in the aggregate and if all Royal Bank Plaintiffs elected to receive cash, then the Company would have been required to deliver cash in the maximum aggregate amount of $600,000. Prior to December 13, 1996, the Royal Bank Plaintiffs elected to receive $600,000 in cash under the terms of the Royal Bank Agreement. On or about December 17, 1996, the Company received notice from the Royal Bank Plaintiffs that the Company was in default of its obligation to pay them $600,000 on December 13, 1996. Under the Royal Bank Agreement, such default caused the Company to incur an immediate $3.25 million debt to the Royal Bank Plaintiffs. Subsequently, in January 1997, the Company entered into a Forbearance Agreement (the "Forbearance Agreement") with the Royal Bank Plaintiffs which provided that notwithstanding the $3.25 million obligation, the Royal Bank Plaintiffs agreed to forbear from exercising their rights and remedies against the Company provided the Company made a payment of $629,100 on or before March 20, 1997 and a payment of $175,000 on or before July 1, 1997. The Company had the option to postpone the second payment ($175,000) by delivering written notice to the Royal Bank Plaintiffs no later than June 25, 1997, whereupon the second payment was to have been paid no later than December 15, 1997 and the amount was to be increased to $250,000. The Company also agreed to reimburse the Royal Bank Plaintiffs for their attorneys' fees and costs. Thereafter, the Royal Bank Plaintiffs agreed to extend the time period for paying the $629,100 to them until May 15, 1997. In addition, the second payment was increased to $225,000 payable on July 1, 1997 subject to postponement until December 15, 1997, in which event the amount was to be increased to $300,000. The amount, which was due May 15, 1997, was not paid by such date. However, effective on June 2, 1997, the Company entered into an Amendment No. 2 to the Forbearance Agreement ("Amendment No. 2") which, among other things, provided that the Royal Bank Plaintiffs would continue to forbear from exercising their rights and remedies under the Royal Bank Agreement and related Forbearance Agreement, provided the Company performed the following: (a) paid $896,000 in eight installments of $112,000 each on May 31, July 31, September 30 and November 30, 1997 and January 31, March 31, May 31 and July 31, 1998 (the "Periodic Payments"), (b) paid $250,000 on or before September 30, 1998, (c) made payments of $25,000 within five business days after any closing(s) since March 20, 1997 of any single or series of sale-leaseback transaction(s) in which the Company received in the aggregate of at least $65,000 in proceeds, and (d) made a final payment on or before September 30, 1998 of the Judgment Amount (as defined in the Forbearance Agreement) less the aggregate amount of the Periodic Payments previously paid; provided, however, that if the Company timely performed its obligations under its settlement documents with the Plaintiffs and either (i) Plaintiffs received all of the Periodic Payments, or (ii) the Company made one final payment in an amount set forth in Amendment No. 2 which amount ranged from $950,000 if such final payment was paid on or before May 31, 1997 to $350,000 if such final payment was paid after May 31, 1998 and on or before July 31, 1998 (and assuming all Periodic Payments coming due prior to the final payment were made), in such event the Plaintiffs agreed to waive the enforceability of the Judgment Amount against the Company and the Company would not be required to make any further payments. The Company also agreed to issue 433,334 shares (the "Forbearance Agreement Shares") of its Common Stock to the Royal Bank Plaintiffs and agreed to register such shares for resale pursuant to a Registration Statement to be filed with the Securities and Exchange Commission. Also, the Company agreed to issue to the Plaintiffs, from time to time until the payments referred to above have been completed, .025 shares of its Common Stock for each share issued in excess of 24,000,000 of the Company's outstanding shares. Amendment No. 2 also provided that the Company F-24 reimburse Plaintiffs for attorneys' fees and costs incurred in connection with the preparation and negotiation of Amendment No. 2. In fiscal 1999, the Company again amended the Forbearance Agreement to provide for payment to Royal bank of $200,000 and 75,000 shares of the Company's Common Stock ("Amendment No. 3"). Effective on March 17, 1999, the Company entered into an Amendment No. 4 to the Forbearance Agreement ("Amendment No. 4") which, among other things, provides that the Royal Bank Plaintiffs would continue to forbear from exercising their rights and remedies under the Royal Bank Agreement and related Forbearance Agreement, provided the Company performed the following: (a) on or before April 16, 1999 paid $200,000 of the Judgment Amount (as defined in the Forbearance Agreement). The Company also agreed to issue to the plaintiffs an aggregate of 319,500 shares of the Company's common stock ("Additional Forbearance Shares") pursuant to an exemption from registration under Rule 506 of Regulation D promulgated under Section 4(2) of the Securities Act. The Company agreed to register these shares with the Securities and Exchange Commission on Form S-3 no later than December 31, 1999. The plaintiffs and the Company executed mutual releases, with the release in favor of the Company to be effective upon the Company's performance of all of its obligations under Amendment No. 4 and the other settlement documents. The Company's obligations under the Royal Bank Agreement are secured by (1) a deed of trust on all real property and patented and un-patented mineral claims owned by the Company; (2) a first priority security interest in all of the Company's right, title and interest in and to any and all goods, products, yield, receivables, inventory (including any gold from any mines), any and all exploration and drilling information, data, maps, reports or surveys, and any and all income and proceeds derived from the Company's mining operations on property which the Company presently or subsequently owns or leases; (3) a first-priority security interest in the Company's right, title and interest in and to any total recovery by the Company on the claims against Bartel, Eng; and (4) a stipulated judgment in the amount of $3,250,000. In fiscal 1996, the Company registered the 1,616,667 shares of Common Stock to be issued and delivered pursuant to the Zuri Agreement the Royal Bank Agreement, which included the 300,000 additional shares that may have been issued pursuant to the Royal Bank Agreement as described above. This number does not include the Forbearance Agreement Shares or the Additional Forbearance Shares (as described above). The Anderson Matter. The Company was plaintiff in the matter of Brush Creek Mining and Development Co., Inc. v. Anderson, et al., United States District Court, Northern District of California, case no. C94-3487 CAL, filed on September 24, 1994. The action was against former officers and directors of the Company and others for violations of federal and state securities laws and common law torts. On April 3, 1998, the Company's counsel, the Hinton & Alfert firm, withdrew as counsel of record. Upon the Company's failure to obtain new counsel as directed by the Court, the action was dismissed with prejudice on May 15, 1998. Following entry of judgment of dismissal, two of the defendants moved as purported prevailing parties for an award of attorney's fees and costs incurred in defending against the Company's claims. The defendants sought by their motion to recover $63,782.14. On August 21, 1998, the Court denied the defendants' motion. The Company is not actively pursuing this matter. The Volcanic Matter. On August 12, 1998, Volcanic Resources, LLC filed a complaint against the Company, its past CEO and Chairman of the Board, and two of its directors. On September 16, 1998, Plaintiff filed its First Amended Complaint alleging breach of contract and breach of express warranties against the Company only and alleging fraud, negligent misrepresentation, rescission, constructive trust, declaratory relief and violation of Business and Professions Code section 17200 against all defendants. The underlying contract giving rise to this suit involves a written Exploration, Development and Mine Operating Agreement entered into November 20, 1997 between Sterling Mining, LLC and the Company. Sterling Mining, LLC assigned its rights under the Exploration, Development and Mine Operating Agreement to Plaintiff. In accordance therewith, the individual defendants filed three preliminary "motions": (1) Motion to Change Venue; (2) Demurrer; and (3) Petition to Compel Arbitration. F-25 The Shareholder Suit. In August 1999, Paul Body and other shareholders of the Company filed a complaint against the Company, its past CEO and Chairman of the Board and three of its directors, alleging fraudulent misrepresentations, breach of contract, breach of express and implied contractual obligations, defamation. The plaintiffs purchased shares of common stock in a private offering and allege that the defendants fraudulently misrepresented the financial condition and business prospects of the Company. The defendants also allege that the Company did not register the common stock purchased as it agreed to as part of the private placements. Certain plaintiffs also allege that they were obstructed in their efforts to sell certain of their shares of common stock. With respect to the defamation allegations, the plaintiffs allege that the former chairman of the Company posted publicly on the Internet defamatory statements regarding the plaintiffs and that the Company has never withdrawn or recanted such statements. Other Matters. In fiscal 1996 and 1997, the Company was requested pursuant to a non-public informal inquiry by the staff of the Securities and Exchange Commission ("Commission"), to provide information to the Commission regarding the Company's financing activities in reliance upon Regulation S under the Securities Act. The Commission advised the Company that the inquiry should not be construed as an indication by the Commission or its staff that any violations of law have occurred, nor should it be considered a reflection upon any person. No charges were filed as a result of the inquiry. On February 8, 1996, the Company filed a complaint against F. James Anderson and Simone Anderson in Superior Court of the State of California, in and for the County of Sacramento, Case No. 96AS 00513 (the "Sacramento Action"). The complaint seeks (a) judicial determination and declarations that the Company (1) has no further obligations to advance defense fees and costs incurred by the Andersons in connection with other settled litigation involving Zuri Invest, including on the Andersons' appeal of that judgment (which fees and costs the Company agreed to pay pursuant to a settlement in a previously resolved matter); (2) is entitled to recoup defense fees and costs allocable to the Andersons' defense of claims in the Zuri Invest matter for which they were found liable; (3) is not required to indemnify the Andersons for their liability in the Zuri Invest litigation; (4) has no duty or obligation to the Andersons to account for, replenish, and/or return monies to or pay interest on the $200,000 provided by the Andersons as partial indemnification to the Company in connection with the Royal Bank litigation; and (5) is entitled to have all amounts returned to the Company from the $200,000 which were disbursed for the purposes other than to indemnify the Company such that the Company receives the full net benefit of the $200,000, and (b) equitable indemnification to collect from the Andersons their proportionate share of the judgment in the Zuri Invest litigation. On April 4, 1996, the Company was served with the Andersons' answer to the Sacramento Action and they're cross-complaint against the Company. The answer generally denied the allegations of the Company's complaint and asserted various affirmative defenses. The cross-complaint seeks judicial determination and declarations that the Company (1) is obligated to advance the Andersons' defense costs (including costs of appeal) in the Zuri litigation and defense costs in the Federal Action and (2) is obligated to indemnify them from the judgment in the Zuri Invest litigation and any judgment that might be rendered against them in the Federal Action. Also, on April 4, 1996, the Company was served with a motion by the Andersons for summary adjudication of two of their cross claims which would have forced the Company to advance the Andersons' defense cost in the Zuri litigation and the Federal Action. On May 3, 1996, the Andersons' motion was heard by the superior court and denied. The Company answered the Andersons' cross complaint on May 6, 1996 generally denying the allegations and asserting various defenses. [Although the Company has not done so to date, the Company may attempt to amend its original complaint to assert an additional claim to hold the Andersons liable for the entire amount of the Royal Bank of Scotland settlement. The Company is a party to other various claims, legal actions and complaints arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the business or financial position of the Company. 1. Ruby Development - Judgment for $1,250,000, default for breech of contact associated with lease of the mine. The Company was not properly served and will ask the court to set aside the judgment. 2. Kate Hardy / Omega - Judgment for $401,606.46 F-26 3. Rising Sun - Judgment for $250,000 4. Jean Gasperoni - Judgment for $105,000, filed suit for commission on funding that the company did not receive. The company is currently appealing the judgment. 5. ACP-Laurich - Judgment for $50,000, Default judgment for lease on office space that the company never occupied. The company is currently planning to appeal. 6. Robert Half Inter. - Judgment for $21,481.79, dated 3/23/99, we have no idea who they are. 7. Western Capital Group for $300,000, Financial Public Relations firm in Aurora, Co. had a consulting agreement with Brush Creek from May 1, 1998 through October 1, 1998. Award by Arbitrator on Dec. 30, 1998 of $209,211.00 Plus costs of $2,323.50 and interest of 8% per month from Aug. 1, 1998. The company plans to appeal all above-mentioned suits through the law office of Pillsbury, Madison & Sutro, LLP. NOTE 12 - SEGMENT INFORMATION -------------------- The Company's activities have been devoted to the acquisition, development, and production of mineral properties. Accordingly, the Company is considered to be in a single line of business. To date, substantially all of the Company's identifiable assets and operating expenditures are in the United States, Southeastern Honduras and Africa. NOTE 13 - CHANGES IN MANAGEMENT ------------------ On April 14, 1999, in connection with the Company's merger, the Company accepted as President and CEO Jefferson Adams Bootes, replacing Larry Stocket. On November 16, 1998, Brush Creek Mining and Development Inc. received the resignation of its chief executive officer (C.E.O.), James Chapin. Brush Creek has accepted the proposal submitted by Mr. Larry Stockett, President of U.S. Cement Company and the Board appointed him as the new President and C.E.O. Mr. Stockett had accepted these positions without compensation until the company reaches its first quarterly after tax profit. Upon resolution of Brush Creek's current legal and financial problems, Mr. Stockett had agreed to transfer his 51% ownership in U.S. Cement Company to Brush Creek. In return, Mr. Stockett would receive restricted shares of stock of Brush Creek at a price of $5 per share for the audited book value of U.S. Cement. In addition, Mr. Stockett would receive one million shares of Brush Creek restricted stock if the BCMDE shares achieve a $5 per share closing price for 10 consecutive days. The above transfers of shares in either company did not take place. The above changes in management and additional changes in employees have led to certain complication that were created with the transfers of the Company's records. There remains a contingency that all transactions and liabilities may have not been recorded. F-27 Item 2. Management's Discussion and Analysis or Plan of Operation. Introduction The following discussion should be read in conjunction with the Financial Information and Notes thereto included in this report and is qualified in its entirety by the foregoing. This report contains information relating to the Company that are based on the beliefs and assumptions made by the Company's management as well as information currently available to the management. Such beliefs reflect the current views of the Company with respect to future events and are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated or expected. The Company has no obligation to publicly release the result of any revisions which may be made to any forward- looking statements to reflect anticipated or unanticipated events or circumstances occurring after the date of such statements. Liquidity and Capital Resources The mining industry is capital intensive and the Company is continuing its efforts to develop active mining operations. During the fiscal quarter ended March 31, 2001, the Company raised approximately $0 from the sale of shares of common stock. Consistent with prior years, the Company derived no material revenues from operations. The Company's accumulated deficit at March 31, 2001 was $59,378,700, compared to accumulated deficit at March 31, 2000 of $58,705,900. As of March 31, 2001, the Company had negative working capital of $7,425,800. Mineral properties and mining equipment, net of depreciation was $3,836,249 at March 31, 2001 and March 31, 2000. The Company's financial resources are limited and to date have been depleted through development costs and losses sustained by the Company through its development stage. The Company has virtually no liquidity as a result of its costs and losses, and the Company currently is experiencing a severe cash shortage. Additional financing continues to be required for the Company to cover its mining and development costs and to commence full-scale mining operations. At this time the Company has no definite plans regarding additional financing, but continues to consider equity financings via stock offerings or joint ventures. There can be no assurance that the Company will be able to raise sufficient capital to cover its costs and commence mining operations, or that it ever will be able to achieve profitable operations. If the Company is unable to obtain sufficient funding from future financings, the Company may not be able to achieve its business objectives and may have to scale back its development plans. Additionally, the Company may be forced to seek protection under the bankruptcy laws. During the fiscal quarter ended March 31, 2001, the Company continued to be in default with respect to certain mining properties and certain county taxes. The lessors have taken action to foreclose on the leases. Default judgments were entered against the company by Rising Sun, Ruby Development and Kate Hardy Mines. The Company estimates mining development and operating costs will be approximately $4 million for the next fiscal year, assuming the Company is able to obtain adequate financing on terms acceptable to the Company. The majority of these funds will be used to exploration and development operations. There can be no assurance that the Company will be able to obtain such financing, or that such financing, or that the terms of such financing will be acceptable to the Company. During December 2000, the Company filed Chapter 11 under the Bankruptcy laws, and withdrew this application in the quarter ended March 31, 2001. Results Of Operations The Company had total revenues of 1,250 for the fiscal quarter ended March 31, 2001 as compared to total revenues of $2,659 for the fiscal quarter ended March 31, 2000. Revenues consisted of interest income. The Company had no material revenues from mining operations, which is consistent with the year ended June 30, 2000 and June 30, 1999. The Company had a net loss of $87,400 for the fiscal quarter ended March 31, 2001, as compared to a net loss of $77,900 for the fiscal quarter ended March 31, 2000. The increase in the size of the net loss of approximately $10,000 is largely attributable to an increase in general and administrative expenses. General and Administrative expenses increased from $80,500 for the fiscal quarter ended March 31, 2000 to $87,500 for the fiscal quarter ended March 31, 2000. Part II - OTHER INFORMATION Item 1. Legal Proceedings. The Royal Bank Action. --------------------- On December 13, 1995, the Company entered into an agreement (the "Royal Bank Agreement") to settle an action commenced by the Royal Bank of Scotland, et al. by delivering to the plaintiffs (the "Royal Bank Plaintiffs") 216,667 shares of the Company's Common Stock and cash in the amount of $241,000. The Company also assigned to the Royal Bank Plaintiffs a portion of its interest in any total recovery from claims against the law firm formerly known as Bartel, Eng, Miller & Torngren, the Company's formal legal counsel ("Bartel, Eng"). On December 13, 1996, the Company was further required to deliver to each of the Royal Bank Plaintiffs, at his or her option, additional shares of the Company's common stock or additional cash. The number of shares of Common Stock or the amount of cash each Royal Bank Plaintiff was entitled to receive was based on the amount of his or her pro rata interest in amounts paid by the Company pursuant to the Royal Bank Agreement. If all Royal Bank Plaintiffs elected to receive Common Stock, then the Company would have been required to issue and deliver a maximum of 300,000 shares in the aggregate and if all Royal Bank Plaintiffs elected to receive cash, then the Company would have been required to deliver cash in the maximum aggregate amount of $600,000. Prior to December 13, 1996, the Royal Bank Plaintiffs elected to receive $600,000 in cash under the terms of the Royal Bank Agreement. On or about December 17, 1996, the Company received notice from the Royal Bank Plaintiffs that the Company was in default of its obligation to pay them $600,000 on December 13, 1996. Under the Royal Bank Agreement, such default caused the Company to incur an immediate $3.25 million debt to the Royal Bank Plaintiffs. Subsequently, in January 1997, the Company entered into a Forbearance Agreement (the "Forbearance Agreement") with the Royal Bank Plaintiffs which provided that notwithstanding the $3.25 million obligation, the Royal Bank Plaintiffs agreed to forbear from exercising their rights and remedies against the Company provided the Company made a payment of $629,100 on or before March 20, 1997 and a payment of $175,000 on or before July 1, 1997. The Company had the option to postpone the second payment ($175,000) by delivering written notice to the Royal Bank Plaintiffs no later than June 25, 1997, whereupon the second payment was to have been paid no later than December 15, 1997 and the amount was to be increased to $250,000. The Company also agreed to reimburse the Royal Bank Plaintiffs for their attorneys' fees and costs. Thereafter, the Royal Bank Plaintiffs agreed to extend the time period for paying the $629,100 to them until May 15, 1997. In addition, the second payment was increased to $225,000 payable on July 1, 1997 subject to postponement until December 15, 1997, in which event the amount was to be increased to $300,000. The amount, which was due May 15, 1997, was not paid by such date. However, effective on June 2, 1997, the Company entered into an Amendment No. 2 to the Forbearance Agreement ("Amendment No. 2") which, among other things, provided that the Royal Bank Plaintiffs would continue to forbear from exercising their rights and remedies under the Royal Bank Agreement and related Forbearance Agreement, provided the Company performed the following: (a) paid $896,000 in eight installments of $112,000 each on May 31, July 31, September 30 and November 30, 1997 and January 31, March 31, May 31 and July 31, 1998 (the "Periodic Payments"), (b) paid $250,000 on or before September 30, 1998, (c) made payments of $25,000 within five business days after any closing(s) since March 20, 1997 of any single or series of sale-leaseback transaction(s) in which the Company received in the aggregate of at least $65,000 in proceeds, and (d) made a final payment on or before September 30, 1998 of the Judgment Amount (as defined in the Forbearance Agreement) less the aggregate amount of the Periodic Payments previously paid; provided, however, that if the Company timely performed its obligations under its settlement documents with the Plaintiffs and either (i) Plaintiffs received all of the Periodic Payments, or (ii) the Company made one final payment in an amount set forth in Amendment No. 2 which amount ranged from $950,000 if such final payment was paid on or before May 31, 1997 to $350,000 if such final payment was paid after May 31, 1998 and on or before July 31, 1998 (and assuming all Periodic Payments coming due prior to the final payment were made), in such event the Plaintiffs agreed to waive the enforceability of the Judgment Amount against the Company and the Company would not be required to make any further payments. The Company also agreed to issue 433,334 shares (the "Forbearance Agreement Shares") of its Common Stock to the Royal Bank Plaintiffs and agreed to register such shares for resale pursuant to a Registration Statement to be filed with the Securities and Exchange Commission. Also, the Company agreed to issue to the Plaintiffs, from time to time until the payments referred to above have been completed, .025 shares of its Common Stock for each share issued in excess of 24,000,000 of the Company's outstanding shares. Amendment No. 2 also provided that the Company reimburse Plaintiffs for attorneys' fees and costs incurred in connection with the preparation and negotiation of Amendment No. 2. In fiscal 1999, the Company again amended the Forbearance Agreement to provide for payment to Royal bank of $200,000 and 75,000 shares of the Company's Common Stock ("Amendment No. 3"). Effective on March 17, 1999, the Company entered into an Amendment No. 4 to the Forbearance Agreement ("Amendment No. 4") which, among other things, provides that the Royal Bank Plaintiffs would continue to forbear from exercising their rights and remedies under the Royal Bank Agreement and related Forbearance Agreement, provided the Company performed the following: (a) on or before April 16, 1999 paid $200,000 of the Judgment Amount (as defined in the Forbearance Agreement). The Company also agreed to issue to the plaintiffs an aggregate of 319,500 [additional?] shares of the Company's common stock ("Additional Forbearance Shares") pursuant to an exemption from registration under Rule 506 of Regulation D promulgated under Section 4(2) of the Securities Act. The Company agreed to register these shares with the Securities and Exchange Commission on Form S-3 no later than December 31, 1999. The plaintiffs and the Company executed mutual releases, with the release in favor of the Company to be effective upon the Company's performance of all of its obligations under Amendment No. 4 and the other settlement documents. The Company's obligations under the Royal Bank Agreement are secured by (1) a deed of trust on all real property and patented and un-patented mineral claims owned by the Company; (2) a first priority security interest in all of the Company's right, title and interest in and to any and all goods, products, yield, receivables, inventory (including any gold from any mines), any and all exploration and drilling information, data, maps, reports or surveys, and any and all income and proceeds derived from the Company's mining operations on property which the Company presently or subsequently owns or leases; (3) a first-priority security interest in the Company's right, title and interest in and to any total recovery by the Company on the claims against Bartel, Eng; and (4) a stipulated judgment in the amount of $3,250,000. In fiscal 1996, the Company registered the 1,616,667 shares of Common Stock to be issued and delivered pursuant to the Zuri Agreement the Royal Bank Agreement, which included the 300,000 additional shares that may have been issued pursuant to the Royal Bank Agreement as described above. This number does not include the Forbearance Agreement Shares or the Additional Forbearance Shares (as described above). The Anderson Matter. ------------------- The Company was plaintiff in the matter of Brush Creek Mining and Development Co., Inc. v. Anderson, et al., United States District Court, Northern District of California, case no. C94-3487 CAL, filed on September 24, 1994. The action was against former officers and directors of the Company and others for violations of federal and state securities laws and common law torts. On April 3, 1998, the Company's counsel, the Hinton & Alfert firm, withdrew as counsel of record. Upon the Company's failure to obtain new counsel as directed by the Court, the action was dismissed with prejudice on May 15, 1998. Following entry of judgment of dismissal, two of the defendants moved as purported prevailing parties for an award of attorney's fees and costs incurred in defending against the Company's claims. The defendants sought by their motion to recover $63,782.14. On August 21, 1998, the Court denied the defendants' motion. The Company is not actively pursuing this matter. The Volcanic Matter. ------------------- On August 12, 1998, Volcanic Resources, LLC filed a complaint against the Company, its past CEO and Chairman of the Board, and two of its directors. On September 16, 1998, Plaintiff filed its First Amended Complaint alleging breach of contract and breach of express warranties against the Company only and alleging fraud, negligent misrepresentation, rescission, constructive trust, declaratory relief and violation of Business and Professions Code section 17200 against all defendants. The underlying contract giving rise to this suit involves a written Exploration, Development and Mine Operating Agreement entered into November 20, 1997 between Sterling Mining, LLC and the Company. Sterling Mining, LLC assigned its rights under the Exploration, Development and Mine Operating Agreement to Plaintiff. In accordance therewith, the individual defendants filed three preliminary "motions": (1) Motion to Change Venue; (2) Demurrer; and (3) Petition to Compel Arbitration. [please describe better the comments cross default w/Ruby, default and judgment][ Ruby sued both Brush Creek and Volcanic and in defending itself Volcanic cross sued JAB. The Shareholder Suit. ----------------------- In August 1999, Paul Body and other shareholders of the Company filed a complaint against the Company, its past CEO and Chairman of the Board and three of its directors, alleging fraudulent misrepresentations, breach of contract, breach of express and implied contractual obligations, defamation. The plaintiffs purchased shares of common stock in a private offering and allege that the defendants fraudulently misrepresented the financial condition and business prospects of the Company. The defendants also allege that the Company did not register the common stock purchased as it agreed to as part of the private placements. Certain plaintiffs also allege that they were obstructed in their efforts to sell certain of their shares of common stock. With respect to the defamation allegations, the plaintiffs allege that the former chairman of the Company posted publicly on the Internet defamatory statements regarding the plaintiffs and that the Company has never withdrawn or recanted such statements. Agreement to settle for $200,000 cash and 125,000 (check this figure) shares of common stock. Other Matters. ------------- In fiscal 1996 and 1997, the Company was requested pursuant to a non-public informal inquiry by the staff of the Securities and Exchange Commission ("Commission"), to provide information to the Commission regarding the Company's financing activities in reliance upon Regulation S under the Securities Act. The Commission advised the Company that the inquiry should not be construed as an indication by the Commission or its staff that any violations of law have occurred, nor should it be considered a reflection upon any person. No charges were filed as a result of the inquiry. On February 8, 1996, the Company filed a complaint against F. James Anderson and Simone Anderson in Superior Court of the State of California, in and for the County of Sacramento, Case No. 96AS 00513 (the "Sacramento Action"). The complaint seeks (a) judicial determination and declarations that the Company (1) has no further obligations to advance defense fees and costs incurred by the Andersons in connection with other settled litigation involving Zuri Invest, including on the Andersons' appeal of that judgment (which fees and costs the Company agreed to pay pursuant to a settlement in a previously resolved matter); (2) is entitled to recoup defense fees and costs allocable to the Andersons' defense of claims in the Zuri Invest matter for which they were found liable; (3) is not required to indemnify the Andersons for their liability in the Zuri Invest litigation; (4) has no duty or obligation to the Andersons to account for, replenish, and/or return monies to or pay interest on the $200,000 provided by the Andersons as partial indemnification to the Company in connection with the Royal Bank litigation; and (5) is entitled to have all amounts returned to the Company from the $200,000 which were disbursed for the purposes other than to indemnify the Company such that the Company receives the full net benefit of the $200,000, and (b) equitable indemnification to collect from the Andersons their proportionate share of the judgment in the Zuri Invest litigation. On April 4, 1996, the Company was served with the Andersons' answer to the Sacramento Action and they're cross-complaint against the Company. The answer generally denied the allegations of the Company's complaint and asserted various affirmative defenses. The cross-complaint seeks judicial determination and declarations that the Company (1) is obligated to advance the Andersons' defense costs (including costs of appeal) in the Zuri litigation and defense costs in the Federal Action and (2) is obligated to indemnify them from the judgment in the Zuri Invest litigation and any judgment that might be rendered against them in the Federal Action. Also, on April 4, 1996, the Company was served with a motion by the Andersons for summary adjudication of two of their cross claims which would have forced the Company to advance the Andersons' defense cost in the Zuri litigation and the Federal Action. On May 3, 1996, the Andersons' motion was heard by the superior court and denied. The Company answered the Andersons' cross complaint on May 6, 1996 generally denying the allegations and asserting various defenses. Although the Company has not done so to date, the Company may attempt to amend its original complaint to assert an additional claim to hold the Andersons liable for the entire amount of the Royal Bank of Scotland settlement. The Company is a party to other various claims, legal actions and complaints arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the business or financial position of the Company. 1. Ruby Development - Judgment for $1,250,000, default for breech of contact associated with lease of the mine. The Company was not properly served and will ask the court to set aside the judgment. 2. Kate Hardy / Omega - Judgment for $401,606.46, default for breech of contact associated with lease of the mine. The Company was not properly served and will ask the court to set aside the judgment. 3. Rising Sun - Judgment for $250,000, default for breech of contact associated with lease of the mine. The Company was not properly served and will ask the court to set aside the judgment. 4. Jean Gasperoni - Judgment for $105,000, filed suit for commission on funding that the company did not receive. The company is currently appealing the judgment. 5. ACP-Laurich - Judgment for $50,000, Default judgment for lease on office space that the company never occupied. The company is currently planning to appeal. 6. Robert Half Inter. - Judgment for $21,481.79, dated 3/23/99, we have no idea who they are. 7. Western Capital Group for $300,000, Financial Public Relations firm in Aurora, Co. had a consulting agreement with Brush Creek from May 1, 1998 through October 1, 1998. Award by Arbitrator on Dec. 30, 1998 of $209,211.00 Plus costs of $2,323.50 and interest of 8% per month from Aug. 1, 1998. The company plans to appeal all above-mentioned suits through the law office of Pillsbury, Madison & Sutro, LLP. Item 2. Changes in Securities. None Item 3. Defaults Upon Senior Securities. None Item 4. Submission of Matters to a Vote of Security Holders. None Item 5. Other Information. None Item 6. Exhibits and Reports on Form 8-K. Exhibits. (a) Exhibits. There are no exhibits applicable to this Form 10-QSB. (b) Reports on Form 8-K. No reports on Form 8-K were filed by the Company for the fiscal quarter ended December 31, 2000. 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. JAB INTERNATIONAL, INC. (Registrant) By: /s/ Stephen H. Durland Date: 05/14/2001 ----------------------------------- ---------------------- Stephen H. Durland Chief Financial Officer

J A B INTERNATIONAL INC 10-Q