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 December 31, 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
------------------------------ -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation of organization) Identification No.)
435 Martin Street, Suite 2000
Blaine, Washington 98230
--------------------------------------
(Address of Principal Executive Offices)
(360) 332-3823
-------------------------
(Issuer's telephone number)
N/A
---------------------------------------------------
(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 February 6, 2003
------ ------------------------------------
Common Stock, $.00001 par value 22,132,110
Transitional Small Business Disclosure Format (check one)
Yes No X
----- -----
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS 1
BALANCE SHEETS 2
INTERIM STATEMENTS OF OPERATIONS 3
INTERIM STATEMENTS OF CASH FLOWS 4
NOTES TO INTERIM FINANCIAL STATEMENTS 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 9
ITEM 3. CONTROLS AND PROCEDURES 14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 15
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 15
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 18
ITEM 5. OTHER INFORMATION 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 18
SIGNATURES 18
i
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
-----------------------------
VEGA-ATLANTIC CORPORATION
(AN EXPLORATION STAGE COMPANY)
INTERIM FINANCIAL STATEMENTS
DECEMBER 31, 2002
(Unaudited)
BALANCE SHEETS
INTERIM STATEMENTS OF OPERATIONS
INTERIM STATEMENTS OF CASH FLOWS
NOTES TO INTERIM FINANCIAL STATEMENTS
1
VEGA-ATLANTIC CORPORATION
(An Exploration Stage Company)
BALANCE SHEETS
December 31, March 31,
2002 2002
------------ ------------
(Consolidated,
(Unaudited) Note 2)
ASSETS
CURRENT ASSETS
Cash $ 241 $ 1,196
------------ ------------
$ 241 $ 1,196
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 56,850 $ 88,588
Advances from related parties (Note 4) 381,289 367,381
------------ ------------
438,139 455,969
------------ ------------
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
22,132,110 (March 31, 2002 - 15,213,405) shares issued and outstanding (Note 7) 408 339
Additional paid-in capital 9,575,078 9,367,586
Deficit accumulated during the exploration stage (10,013,384) (9,822,698)
------------ ------------
Total stockholders' equity (deficit) (437,898) (454,773)
------------ ------------
$ 241 $ 1,196
============ ============
CONTINGENCIES (Note 1)
The accompanying notes are an integral part of these interim financial statements.
2
VEGA-ATLANTIC CORPORATION
(An Exploration Stage Company)
INTERIM STATEMENTS OF OPERATIONS
(Unaudited)
Three Three Nine Nine January 28,
months months months months 1987
ended ended ended ended (inception) to
December December December December December
31, 2002 31, 2001 31, 2002 31, 2001 31, 2002
------------ ------------ ------------ ------------ ------------
(Consolidated, (Consolidated,
Note 2) Note 2)
EXPLORATION EXPENSES
Joint venture acquisition costs $ -- $ -- $ -- $ -- $ 1,278,439
Claims staking and exploration -- -- -- -- 112,384
Research and development -- -- -- -- 783,182
------------ ------------ ------------ ------------ ------------
-- -- -- -- 2,174,005
------------ ------------ ------------ ------------ ------------
GENERAL AND ADMINISTRATIVE EXPENSES
Consulting fees 150,000 -- 150,000 -- 544,997
Directors' fees (recovery) -- (33,000) -- (61,266) 49,500
Office and general 57,999 77,962 145,373 194,264 3,658,794
Interest expense 10,938 5,375 27,232 21,131 251,157
Professional fees 11,270 13,413 30,081 42,821 328,036
Gain on settlement of debt -- -- -- -- (66,267)
Gain on sale of joint venture interest -- -- -- (50,000) (69,318)
------------ ------------ ------------ ------------ ------------
230,207 63,750 352,686 146,950 4,696,899
------------ ------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE THE FOLLOWING (230,207) (63,750) (352,686) (146,950) (6,870,904)
Gain on settlement of lawsuit (Note 5) -- -- 162,000 657,066 819,066
Loss on settlement of convertible promissory notes -- -- -- -- (1,754,917)
------------ ------------ ------------ ------------ ------------
INCOME (LOSS) FROM
CONTINUING OPERATIONS (230,207) -- (190,686) 510,116 (7,806,755)
DISCONTINUED OPERATIONS
Loss from discontinued operations of Century
Manufacturing, Inc. -- -- -- -- (2,206,629)
------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS) FOR THE PERIOD $ (230,207) $ (63,750) $ (190,686) $ 510,116 $(10,013,384)
============ ============ ============ ============ ============
BASIC EARNINGS PER SHARE $ (0.01) $ (0.00) $ (0.01) $ 0.03
============ ============ ============ ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 22,132,110 14,861,503 17,528,026 14,679,768
============ ============ ============ ============
The accompanying notes are an integral part of these interim financial statements.
3
VEGA-ATLANTIC CORPORATION
(An Exploration Stage Company)
INTERIM STATEMENTS OF CASH FLOWS
(Unaudited)
January 28, 1987
Nine months Nine months (inception)
ended December ended December to December
31, 2002 31, 2001 31, 2002
------------ ------------ ------------
(Consolidated,
Note 2)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) for the period $ (190,686) $ 510,116 $(10,013,384)
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, -- -- (61,267)
- gain on settlement of lawsuit -- (657,066) (651,316)
- gain on sale of joint venture interest -- -- (50,000)
- non-cash gain on settlement of lawsuit (12,000) -- (12,000)
- consulting and administration fees accrued 320,050 -- 320,050
- net changes in non-cash working capital items (31,738) 148,363 360,863
------------ ------------ ------------
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES 85,626 1,413 (4,218,605)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from (repaid to) related parties - net (86,581) -- 1,435,391
Interest paid -- (1,883) (1,433)
Convertible notes -- -- 99,500
Sale of common stock -- -- 3,357,000
------------ ------------ ------------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES (86,581) (1,883) 4,890,458
------------ ------------ ------------
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 (955) (470) 241
CASH, BEGINNING OF PERIOD 1,196 1,442 --
------------ ------------ ------------
CASH, END OF PERIOD $ 241 $ 972 $ 96
============ ============ ============
Non-cash transactions: Refer to Notes 4 and 5.
The accompanying notes are an integral part of these interim financial statements.
4
VEGA-ATLANTIC CORPORATION
(An Exploration Stage Company)
NOTES TO THE INTERIM FINANCIAL STATEMENTS
DECEMBER 31, 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.
At December 31, 2002, the Company had a working capital deficiency of $437,898
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 may 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
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 Nine
months ended December 31, 2002 are not necessarily indicative of the results
that may be expected for the year ending March 31, 2003.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------------------
Principles of Consolidation
The comparative financial statements have been prepared on a consolidated basis
and include the accounts of the Company and its 100% owned subsidiaries, Polar
Explorations Ltd. and Alaskan Explorations Corp. which were sold during May,
2001. All significant intercompany transactions and account balances have been
eliminated.
Use of Estimates and Assumptions
Preparation of the Company's financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all liquid investments, with an original maturity of three
months or less when purchased, to be cash equivalents.
Foreign Currency Translation
The financial statements are presented in United States dollars. In accordance
with Statement of Financial Accounting Standards No. 52, "Foreign Currency
Translation", foreign denominated monetary assets and liabilities are translated
to their United States dollar equivalents using foreign exchange rates which
prevailed at the balance sheet date. Revenue and expenses are translated at
average rates of exchange during the year. Related translation adjustments are
reported as a separate component of stockholders' equity, whereas gains or
losses resulting from foreign currency transactions are included in results of
operations.
Interest in Mineral Properties
Mineral property acquisition costs, capital contributions and exploration costs
are expensed as incurred until such time as proven economically recoverable
reserves are established.
5
VEGA-ATLANTIC CORPORATION
(An Exploration Stage Company)
NOTES TO THE INTERIM FINANCIAL STATEMENTS
DECEMBER 31, 2002
(Unaudited)
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
--------------------------------------------------------------------------------
Net Earnings (Loss) per Common Share
Basic earnings (loss) per share includes no dilution and is computed by dividing
income available to common stockholders by the weighted average number of common
shares outstanding for the period. Dilutive earnings (loss) per share reflects
the potential dilution of securities that could share in the earnings of the
Company. The accompanying presentation is only of basic earnings per share as
the potentially dilutive factors are anti-dilutive to basic earnings per share.
Income Taxes
The Company follows the liability method of accounting for income taxes. Under
this method, deferred income tax assets and liabilities are recognized for the
estimated tax consequences attributable to differences between the financial
statement carrying values and their respective income tax basis (temporary
differences). The effect on deferred income tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Stock-Based Compensation
The Company accounts for stock-based compensation in respect to stock options
granted to employees and officers using the intrinsic value based method in
accordance with APB 25. Stock options granted to non-employees are accounted for
using the fair value method in accordance with SFAS No. 123. In addition, with
respect to stock options granted to employees, the Company provides pro-forma
information as required by SFAS No. 123 showing the results of applying the fair
value method using the Black-Scholes option pricing model.
The Company accounts for equity instruments issued in exchange for the receipt
of goods or services from other than employees in accordance with SFAS No. 123
and the conclusions reached by the Emerging Issues Task Force in Issue No.
96-18. Costs are measured at the estimated fair market value of the
consideration received or the estimated fair value of the equity instruments
issued, whichever is more reliably measurable. The value of equity instruments
issued for consideration other than employee services is determined on the
earliest of a performance commitment or completion of performance by the
provider of goods or services as defined by EITF 96-18.
On March 31, 2000, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No.44, Accounting for Certain Transactions Involving Stock
Compensation - An Interpretation of APB Opinion No. 25 ("FIN 44"), which
provides guidance as to certain applications of APB 25. FIN 44 is generally
effective July 1, 2000 with the exception of certain events occurring after
December 15, 1998. The Company has determined that the implementation of this
standard does not have a material impact on its financial statements.
Comparative figures
Certain of the comparative figures have been restated to conform to 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 "Old SOP"). 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 December 31, 2002, 487,500 options with an exercise
price of $1.00 per share of common stock are outstanding and during the nine
month period ended December 31, 2002, no options had been exercised or
forfeited, and no options had expired. Subsequent to December 31, 2002, the Old
SOP and the options issued thereon were cancelled. (See Note 7.)
6
VEGA-ATLANTIC CORPORATION
(An Exploration Stage Company)
NOTES TO THE INTERIM FINANCIAL STATEMENTS
DECEMBER 31, 2002
(Unaudited)
NOTE 4: RELATED PARTY TRANSACTIONS
--------------------------------------------------------------------------------
During the nine month period ended December 31, 2002 the Company incurred
expenses for managerial, administrative and investor relation services in the
amount of $170,050 (2001 - $194,650) to Investor Communications International,
Inc. ("ICI") under a consulting services and management agreement dated April 1,
1999 and a further $150,000 for additional consulting services during the third
quarter. The Company accrued $22,249 in interest payable, received advances of
$15,956 and repaid $133,200 to ICI. A director of the Company provides
consulting services to ICI and was paid approximately $17,325 during the nine
month period ended December 31, 2002 (2001 - $3,400). Additionally, the Company
issued 4,696,244 common shares to ICI at $0.03 per share in satisfaction of
$140,887 in debts. As at December 31, 2002, $350,210 plus $8,594 in accrued
interest at 10% per annum is owed to ICI (2001 - $251,128 plus $23,508 accrued
interest). The balance of amounts owing to ICI is unsecured and without any
specified terms of repayment.
During the nine month period ended December 31, 2002, the Company received
advances of $3,603 and accrued $4,810 in interest due to certain shareholders.
Additionally, the Company issued 2,622,461 common shares to these certain
shareholders at $0.03 per share in satisfaction of $78,674 in debts. As at
December 31, 2002, $22,485 is owing to certain shareholders for cash advances
and accrued interest at 10% per annum (2001 - $92,746). The balance of amounts
owing to certain shareholders are unsecured and without any specified terms of
repayment.
NOTE 5: LITIGATION
--------------------------------------------------------------------------------
On January 12, 2000, the Company entered into a letter of intent with Golden
Thunder Resources Ltd. ("Golden Thunder"), a Canadian public company, to
purchase from Golden Thunder 80% of the issued and outstanding shares of common
stock of Tun Resources Inc., a Canadian corporation ("Tun Resources"), with an
option to purchase the remaining 20% of the issued and outstanding shares of Tun
Resources at fair market value.
On May 2, 2000, the Company executed a definitive closing agreement to purchase
the 80% interest in Tun Resources. The 80% interest in Tun Resources was
purchased in exchange for the funding commitment of $1,180,000 by August 15,
2000 (subsequently extended to February 15, 2001, and further extended to the
date of the vendor's next annual shareholder meeting) and the issuance of
400,000 restricted shares in the capital of the Company valued at $672,000.
On December 12, 2000, as amended on February 9, 2001, the Company provided an
offer to Golden Thunder that outlined a revised offer to purchase the remaining
20% of Tun Resources and to repurchase all of the Company's 400,000 shares owned
by Golden Thunder in consideration for $113,750. The Company also issued a
letter to Golden Thunder requesting an extension to the funding commitment
requirement outlined in the Acquisition Agreement until such time as the
shareholders of Golden Thunder have voted to accept or reject the amended offer
dated February 9, 2001. Subsequently, the amended offer was rejected by the
shareholders of Golden Thunder. The Company then initiated legal proceedings
against Golden Thunder and Tun Resources for breaches of the Acquisition
Agreement and other causes of action, and sought damages of in excess of
$800,000. Golden Thunder and Tun Resources then filed a statement of defense
alleging that the Company breached the acquisition agreement. Accordingly, for
accounting purposes effective March 31, 2001 the Company ceased consolidating
the assets, liabilities and operations of Tun Resources in its financial
statements and recorded a loss on impairment of $990,645 relating to this
investment.
During the nine month period ended December 31, 2002, for consideration of
$150,000 and the return to Treasury of the 400,000 shares owned by Golden
Thunder, the Company entered into an agreement in settlement of its lawsuit with
Golden Thunder and Tun Resources resulting in a gain on settlement of $162,000.
Effective November 1, 2002, upon receipt of the final $25,000, the Company
released all of its claims against Golden Thunder and Tun Resources. During the
nine month period ended December 31, 2002, the Company cancelled the 400,000
shares previously returned to Treasury.
7
VEGA-ATLANTIC CORPORATION
(An Exploration Stage Company)
NOTES TO THE INTERIM FINANCIAL STATEMENTS
DECEMBER 31, 2002
(Unaudited)
NOTE 6: INCOME TAXES
--------------------------------------------------------------------------------
Income taxes are provided pursuant to SFAS No. 109, Accounting for Income Taxes.
The statement requires the use of an asset and liability approach for financial
reporting for income taxes. If it is more likely than not that some portion or
all of a deferred tax asset will not be realized, a valuation allowance is
recognized. Accordingly, as the realization and use of the net operating loss
carryforward is not probable, the tax benefit of the loss carryforward has been
offset by a valuation allowance of the same amount.
NOTE 7: SUBSEQUENT EVENTS
--------------------------------------------------------------------------------
On February 2, 2003, the Company filed an Information Statement with the
Securities and Exchange Commission ("SEC") to obtain approval for a reverse
stock split and a new Stock Option Plan ("New SOP"). The Company is seeking a
reverse stock split of up to one-for-twenty which is planned to become effective
on or about March 31, 2003.
The New SOP shall be deemed to be effective as of March 25, 2003. The New SOP
provides authority for the Board to grant Options, for the purchase of a total
number of shares of the Company's post reverse-split common stock, not to exceed
3,000,000. The New SOP also provides that in no event may the maximum number of
shares reserved for any one individual exceed 15% of the issued and outstanding
share capital of the Company. The option period of options granted under the New
SOP shall be up to 10 years and the option price per share shall be no less than
the fair market value of a share of common stock on the date of grant of the
stock option.
Subsequent to December 31, 2002, the Company's Old SOP was cancelled and the
options issued thereon were cancelled.
8
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, 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).
CURRENT BUSINESS OPERATIONS
Investment in Other Ventures
As of the date of this Quarterly Report, management has sought to develop a
diversified international resources exploration, development and production
program. Management currently has various business acquisitions under review.
The Company may, subject to due diligence, seek investment and business
acquisitions in other industries unrelated to resource exploration.
PRIOR OPERATIONAL HISTORY
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.
9
During the prior fiscal year and in accordance with, and due to, the terms
of the Acquisition Agreement, 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 twenty percent (20%) of Tun
Resources; (ii) repurchase all of the Company's 400,000 (post-split) shares of
Common Stock from Golden Thunder; and (iii) request an extension to the funding
commitment requirement outlined in the Acquisition Agreement until such time as
the shareholders of Golden Thunder voted to accept or reject the offer (the
"Letter Offer"). The Letter Offer was presented to the shareholders of Golden
Thunder for their approval and such approval was not received.
On July 8, 2001, the Company filed a Statement of Claim in the Supreme
Court of British Columbia naming Golden Thunder and Tun Resources as defendants
("Action No. 5013872"). On November 1, 2002, the Company, Tun Resources and
Golden Thunder entered into a settlement agreement and release of all claims
(the `Settlement Agreement"). Pursuant to the terms of the Settlement Agreement:
(i) Tun Resources and Golden Thunder paid to the Company $150,000.00; (ii) the
Company released Tun Resources and Golden Thunder from any and all claims
arising directly or indirectly from Action No. 5013872; and (iii) Golden Thunder
returned to the Company its stock certificate evidencing the 1,600,000 (400,000
post-split) shares of restricted common stock, which were cancelled. See "PART
II. OTHER INFORMATION. ITEM 1. LEGAL PROCEEDINGS."
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 acquired the right to acquire an approximate seventy percent (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.
As of the date of this Quarterly Report, management of the Company does not
believe that a definitive joint venture agreement will be consummated nor that
any other China-based ventures will be pursued by the Company.
RESULTS OF OPERATIONS
Nine-Month Period Ended December 31, 2002 Compared to Nine-Month Period
Ended December 31, 2001
The Company's net loss for the nine-month period ended December 31, 2002
was approximately ($190,686) compared to net income of approximately $510,116
for the nine-month period ended December 31, 2001.
During the nine-month periods ended December 31, 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.
10
During the nine-month period ended December 31, 2002, the Company recorded
general and administrative expenses of approximately $352,686 compared to
general and administrative expenses of approximately $258,216 incurred during
the nine-month period ended December 31, 2001 (an increase of $94,470). Although
the Company incurred $352,686 of general and administrative expenses during the
nine-month period ended December 31, 2002, such expenses were offset by $162,000
realized as a gain from settlement of the litigation with Tun Resources and
Golden Thunder, resulting in a net loss of ($190,686). And, although the Company
actually incurred $258,216 of general and administrative expenses during the
nine-month period ended December 31, 2001, such expenses were offset by $61,266
from recovery of directors' fees, $50,000 from a gain on the sale of Alaskan
Explorations Corp. and related Lemachang silver deposit Sino-Foreign joint
venture interest, and $657,066 realized as a gain from settlement of the
litigation with Tun Resources and Golden Thunder, resulting in net income of
$510,116.
The increase in general and administrative expenses during the nine-month
period ended December 31, 2002 compared to the nine-month period ended December
31, 2001 was primarily due to an increase in consulting fees relating to
identification and negotiation of potential investment opportunities in other
ventures. During the nine-month period ended December 31, 2002, the Company's
general and administrative expenses consisted of: (i) $150,000 in consulting
fees; (ii) $145,373 in office and general expenses; (iii) $30,081 in
professional fees; and (iv) $27,232 in interest expense. During the nine-month
period ended December 31, 2001, the Company's general and administrative
expenses consisted of (i) $194,264 in office and general expenses; (ii) $42,821
in professional fees; and (iii) $21,131 in interest expense. General and
administrative expenses generally include corporate overhead, financial and
administrative contracted services, consulting costs and professional fees.
Of the $352,686 incurred as general and administrative expenses, the
Company incurred to Investor Communications International, Inc. ("ICI")
approximately (i) $320,050 for amounts due and owing for managerial,
administrative, financial and consulting services rendered by ICI; (ii) $22,249
as accrued interest; and (iii) $15,956 as advances payable. During the
nine-month period ended December 31, 2002, the Company repaid $133,200 to ICI.
Furthermore, the Company and ICI entered into a settlement agreement dated
August 22, 2002 (the "Settlement Agreement"). Pursuant to the terms of the
Settlement Agreement: (i) the Company agreed to settle an aggregate debt of
$140,887.31 due and owing to ICI as of August 22, 2002, including accrued
interest, by the issuance of 4,696,244 shares of its restricted Common Stock at
the rate of $0.03 per share (which was the average of the opening and the
closing price of the Company's Common Stock trading on the OTC Bulletin Board
from July 1, 2002 through August 22, 2002, discounted by 25%); and (ii) ICI
agreed to accept the issuance of the 4,696,244 shares of restricted Common Stock
as settlement and full satisfaction of the aggregate debt due and owing it.
"Part II. OTHER INFORMATION. ITEM 2. CHANGES IN USE OF PROCEEDS AND SECURITIES.
One of the directors of the Company is contracted by ICI and is part of the
management team provided by ICI to the Company. During the nine-month period
ended December 31, 2002, Grant Atkins received an aggregate of $17,325 from ICI
for services provided to the Company.
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
11
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 of the date of this Quarterly Report, such services provided by ICI
include not only those services listed above related to administration, public
company operations and maintenance of the Company, but also involved the
negotiation and due diligence of certain contractual agreements relating to
proposed investment opportunities in other ventures and the negotiation and
settlement of the litigation with Tun Resources and Golden Thunder. Other
services provided by ICI include securing of short-term advance financing and
sourcing of private placement funding.
As discussed above, the incurrence of a net loss during the nine-month
period ended December 31, 2002 compared to net income realized during the
nine-month period ended December 31, 2001 is attributable primarily to the gain
of $657,066 realized from the settlement of the litigation with Tun Resources
and Golden Thunder, the gain of $50,000 realized from the sale of the joint
venture interest, and the recovery of $61,266 during the nine-month period ended
December 31, 2001. The Company's net loss during the nine-month period ended
December 31, 2002 was approximately ($190,686) or ($0.01) per common share
compared to net income of approximately $510,116 or $0.03 per common share
during the nine-month period ended December 31, 2001. The weighted average
number of shares outstanding were 17,528,026 for the nine-month period ended
December 31, 2002 compared to 14,679,768 for the nine-month period ended
December 31, 2001 (which were restated to take into account the reverse stock
split of 4 to 1).
Three-Month Period Ended December 31, 2002 Compared to Three-Month Period
Ended December 31, 2001
The Company's net loss for the three-month period ended December 31, 2002
was approximately ($230,207) compared to a net loss of approximately ($63,750)
for the three-month period ended December 31, 2001.
During the three-month periods ended December 31, 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 December 31, 2002, the Company recorded
general and administrative expenses of approximately $230,207 compared to
general and administrative expenses of approximately $96,750 incurred during the
three-month period ended December 31, 2001 (an increase of $133,457). Although
the Company incurred $96,750 of general and administrative expenses during the
three-month period ended December 31, 2001, such expenses were offset by $33,000
from recovery of directors' fees, resulting in a net loss of ($63,750).
The increase in general and administrative expenses during the three-month
period ended December 31, 2002 compared to the three-month period ended December
31, 2001 was primarily due to an increase in consulting fees relating to
12
identification and negotiation of potential investment opportunities in other
ventures. During the three-month period ended December 31, 2002, the Company's
general and administrative expenses consisted of: (i) $150,000 in consulting
fees; (ii) $57,999 in office and general expenses; (iii) $11,270 in professional
fees; and (iv) $10,938 in interest expense. During the three-month period ended
December 31, 2001, the Company's general and administrative expenses consisted
of (i) $77,962 in office and general expenses; (ii) $13,413 in professional
fees; and (iii) $5,375 in interest expense.
As discussed above, the increase in net loss during the three-month period
ended December 31, 2002 compared to net loss during the three-month period ended
December 31, 2001 is attributable primarily to the increase in general and
administrative expenses. The Company's net loss during the three-month period
ended December 31, 2002 was approximately ($230,207) or ($0.01) per common share
compared to net loss of approximately ($63,750) or ($0.00) per common share
during the three-month period ended December 31, 2001. The weighted average
number of shares outstanding were 22,132,110 for the three-month period ended
December 31, 2002 compared to 14,861,503 for the three-month period ended
December 31, 2001 (which were restated to take into account the reverse stock
split of 4 to 1).
LIQUIDITY AND CAPITAL RESOURCES
For Nine-Month Period Ended December 31, 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 fund its business operations and
material commitments. The Company's future success and viability, therefore, are
dependent upon the Company's ability to successfully identify, develop, and
consummate any proposed investment opportunities in ventures under
consideration, 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.
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 capital raising efforts, the settlement of its claims against Tun
Resources and Golden Thunder, and obtaining advances from certain investors and
related parties, as necessary.
As of December 31, 2002, the Company's current assets were $241 and its
current liabilities were $438,139. As of December 31, 2002, the current
liabilities exceeded current assets by $437,898. 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.
13
The decrease in current liabilities during the nine-month period ended
December 31, 2002 from fiscal year ended March 31, 2002 was due primarily to a
decrease in accounts payable and accrued liabilities.
Stockholders' deficit decreased from ($454,773) for fiscal year ended March
31, 2002 to ($437,898) for the nine-month period ended December 31, 2002.
For the nine-month period ended December 31, 2002, net cash flows from
operating activities was $85,626 compared to $1,413 of net cash from operating
activities for the nine-month period ended December 31, 2001. As noted above,
the increase was comprised of (i) net loss of ($190,686) incurred during the
nine-month period ended December 31, 2002 compared to net income of $510,116
realized during the nine-month period ended December 31, 2001; (ii) net changes
in working capital items of ($31,738) during the nine-month period ended
December 31, 2002 compared to net changes in working capital items of $148,363
for the nine-month period ended December 31, 2001; (iii) adjustment of
($657,066) from settlement of litigation with Tun Resources and Golden Thunder
during the nine-month period ended December 31, 2001 compared to $-0- adjustment
during the nine-month period ended December 31, 2002; and (iv) consulting and
administrative fees accrued in the amount of $320,050 during the nine-month
period ended December 31, 2002 compared to $-0- accrued during the nine-month
period ended December 31, 2001.
Net cash flows used in financing activities during the nine-month period
ended December 31, 2002 was ($86,581) resulting primarily from advances repaid
to related parties compared to net cash flows used in financing activities of
($1,883) during the nine-month period ended December 31, 2001.
Net cash flows from investing activities were $-0- during the nine-month
periods ended December 31, 2002 and 2001.
ITEM III. CONTROLS AND PROCEDURES
(a) The Company, under the supervision of the President and legal counsel,
has conducted an evaluation of the effectiveness of the design and operation of
the Company's disclosure controls and procedures within ninety (90) days of the
filing date of this Quarterly Report. Based upon the results of this evaluation,
the Company believes that they maintain proper procedures for gathering,
analyzing and disclosing all information in a timely fashion that is required to
be disclosed in its reports under the Securities Exchange Act of 1934, as
amended. There have been no significant changes in the Company's controls
subsequent to the evaluation date.
(b) There were no significant changes in the Company's internal control or
in other factors that could significantly affect the Company's internal controls
subsequent to the evaluation date.
14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Tun Resources Litigation
On July 8, 2001, the Company filed a Statement of Claim in the Supreme
Court of British Columbia naming Golden Thunder Resources Ltd. and Tun Resources
Inc. as defendants ("Action No. 5013872"). The Company alleged in the Statement
of Claim that certain representations were made by the defendants to the Company
as follows: (i) Tun Resources had good and marketable title to its assets; (ii)
the consideration paid by the Company was good and valuable consideration for
acquisition of the shares in Tun Resources; (iii) the intercorporate loan
financing, which was to be provided by financing arranged by private investments
and therefore the joint ventures were marketable; and (iv) the control of Tun
Resources would be transferred to the Company upon closing of the Acquisition
Agreement. The Company alleged in the Statement of Claim that such
representations were false and untrue and that the defendants made the
representations fraudulently or negligently knowing them to be untrue or
recklessly without caring whether they were true or false and that (i) the title
Tun Resources had to the assets was not good and marketable and was considerably
lower in value than represented to the Company; (ii) the consideration paid by
the Company to acquire the shares of Tun Resources was excessive and not good
and valuable consideration; (iii) the intercorporate loan could not be raised in
the manner agreed upon by the Company and defendants; and (iv) the board of
directors of Golden Thunder and Tun Resources refused or neglected to replace
the board of directors of Tun Resources with the board of directors of Golden
Thunder. The Company further alleged in the Statement of Claim that (i) the
defendants made such representations to the Company in order to induce the
Company to enter into the Acquisition Agreement; (ii) the Company reasonably
relied upon the representations made to it by the Defendants; and (iii) such
misrepresentations are breaches of material terms of the Acquisition Agreement
and have caused the Company loss and damages. The Company sought general and
special damages in excess of $800,000.00.
On August 2, 2001, Tun Resources and Golden Thunder filed its Statement of
Defense in which it alleged that the Company breached the Acquisition Agreement
by its failure to provide funding in the amount of $1,180,000 to Tun Resources
and that such failure to provide the required funding adversely affected the
value of assets to be purchased by the Company.
On November 1, 2002, the Company, Tun Resources and Golden Thunder entered
into an agreement and release of all claims (the "Settlement Agreement").
Pursuant to the terms of the Settlement Agreement: (i) Tun Resources and Golden
Thunder paid to the Company $150,000.00; (ii) the Company released Tun Resources
and Golden Thunder from any and all claims arising directly or indirectly from
Action No. 5013872; and (iii) Golden Thunder returned to the Company its stock
certificate evidencing the 1,600,000 (400,000 post-reverse split) shares of
restricted common stock, which were cancelled.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) On May 1, 2000, the shareholders of the Company voted to approve the
creation and adoption of an employee stock option plan (the "SOP"). The SOP
extends for a ten-year term and consists of 500,000 share options priced at
$1.00 per share. As of March 31, 2002 and December 31, 2002, 487,500 stock
options with an exercise price of $1.00 per share of common stock were
outstanding. During the nine-month period ended December 31, 2002, no stock
options had been exercised or forfeited.
Subsequent to December 31, 2002, the board of directors of the Company
voted to terminate the SOP and to unilaterally cancel the 487,500 stock options
as granted. The board of directors based its decision regarding cancellation of
the stock options on the fact that the SOP and subsequent grants of stock
options were done at a time when management anticipated that the Company would
have a viable and ongoing business development venture relating to certain gold
mining claims located in Idaho. The grantees did not perform the services
intended as the gold mining claims in Idaho did not contain any gold and
associated business operations failed. The business venture was subject to
litigation and is no longer being pursued by the Company.
(b) On August 22, 2002, the board of directors of the Company authorized
the execution of settlement agreements between the Company and certain creditors
of the Company, and the subsequent issuance of 7,318,705 shares of its
restricted common stock.
(a) The Company had incurred a debt inclusive of accrued interest in the
aggregate amount of $140,887.31 to ICI for prior services rendered by ICI on
behalf of the Company including, but not limited to, financial, administrative,
investor relations and minerals, oil and gas acquisition, exploration and
management. Therefore, the Company and ICI entered into a settlement agreement
dated August 22, 2002 (the "ICI Settlement Agreement"). Pursuant to the terms of
15
the ICI Settlement Agreement, (i) the Company agreed to settle the $140,887.31
debt due and owing ICI by the issuance of 4,696,244 shares of its restricted
common stock at the rate of $0.03 per share (which is the average of the open
and close price of the Company's common stock trading on the OTC Bulletin Board
on August 22, 2002); and (ii) ICI agreed to accept the issuance of the 4,696,244
shares of restricted common stock as settlement and full satisfaction of the
aggregate debt due and owing it as of the date of the ICI Settlement Agreement.
(b) The Company had incurred a debt inclusive of accrued interest in the
aggregate amount of $36,486.42 to Tri Star Financial Services, Inc. ("Tri Star")
pursuant to prior advances made by Tri Star to the Company. Therefore, the
Company and Tri Star entered into a settlement agreement dated August 22, 2002
(the "Tri Star Settlement Agreement"). Pursuant to the terms of the Tri Star
Settlement Agreement, (i) the Company agreed to settle the $36,486.42 debt due
and owing Tri Star by the issuance of 1,216,214 shares of its restricted common
stock at the rate of $0.03 per share (which is the average of the open and close
price of the Company's common stock trading on the OTC Bulletin Board on August
22, 2002); and (ii) Tri Star agreed to accept the issuance of the 1,216,214
shares of restricted common stock as settlement and full satisfaction of the
aggregate debt due and owing it as of the date of the Tri Star Settlement
Agreement.
(c) The Company had incurred a debt inclusive of accrued interest in the
aggregate amount of $42,187.41 to Brent Pierce, an individual ("Pierce")
pursuant to prior advances made by Pierce to the Company. Therefore, the Company
and Pierce entered into a settlement agreement dated August 22, 2002 (the
"Pierce Settlement Agreement"). Pursuant to the terms of the Pierce Settlement
Agreement, (i) the Company agreed to settle the $42,187.41 debt due and owing
Pierce by the issuance of 1,406,247 shares of its restricted common stock at the
rate of $0.03 per share (which is the average of the open and close price of the
Company's common stock trading on the OTC Bulletin Board on August 22, 2002);
and (ii) Pierce agreed to accept the issuance of the 1,406,247 shares of
restricted common stock as settlement and full satisfaction of the aggregate
debt due and owing him as of the date of the Pierce Settlement Agreement.
As a result of the issuance of the 7,318,705 shares of restricted common
stock pursuant to the ICI Settlement Agreement, the Tri Star Settlement
Agreement and the Pierce Settlement Agreement, there was a change in control of
the Company. The following table sets forth the name and address, as of the date
of this Report, and the approximate number of shares of common stock owned of
record or beneficially by each person who owned of record, or was known by the
Company to own beneficially, more than five percent (5%) of the Company's common
stock, and the name and shareholdings of each officers and director, and all
officers and directors as a group. As of the date of this Quarterly Report,
there are 22,132,110 shares of the Company's common stock issued and
outstanding.
16
--------------------------------------------------------------------------------
Title of Class Name and Address of Amount and Nature Percent of
Beneficial Owner of Class Class
--------------------------------------------------------------------------------
(2) (1)
Common Stock Investor Communications 6,071,244 26.94%
International, Inc.
435 Martin Street
Suite 2000
Blaine, Washington 98320
(3) (1)
Common Stock TriStar Financial 1,216,214 5.40%
Services Inc.
435 Martin Street, Suite 2000
Blaine, Washington 98270
(1)
Common Stock Alexander W. Cox 4,323,300 19.19%
428 - 755 Burrard Street
Vancouver, British Columbia
Canada V6Z 1X6
(1)
Common Stock Brent Pierce 1,406,247 6.24%
Mr. Brent G. Pierce
16377 Lincoln Woods Court
Surrey, B.C. V3S 0J8
(4) (1)
Common Stock Pacific Rim Financial, Inc. 1,133,300 5.03%
60 Market Square
P.O. Box 364
Belize City, Belize
(1)
Common Stock All officers and directors 5,000 0.003%
as a group (1 person)
--------------------------------------------------------------------------------
(1)
These are restricted shares of common stock.
(2)
The sole officer/director of ICI is Marcus Johnson, with a business address
of 4507 Lakeway Drive, Bellingham, Washington 98226. The primary shareholders of
ICI are: (i) Marcus Johnson (45%), with a business address of 4507 Lakeway
Drive, Bellingham, Washington 98226; (ii) Ocean & Sea Empire Trust (24%), with a
business address of Arundel House, 31 A-St., James Square, London SW1Y45R United
Kingdom; and (iii) Hornback Trust (24%), with a business address of c/o Belize
Bank & Trust, 60 Market Street, P.O. Box 364, Belize City, Belize.
(3)
The sole officer/director of TriStar is Marcus Johnson, with a business
address of 4507 Lakeway Drive, Bellingham, Washington 98226. The sole
shareholder of TriStar is Colonial Financial Group Inc., with a business address
of Gubelstrasse 15, CH-6300 2 ug., Switzerland.
(4)
The sole/officer and director of Pacific Rim Financial, Inc. is Richard
Elliot-Square, with a business address of 60 Market Square, P.O. Box 364, Belize
City, Belize. The sole shareholder of Pacific Rim Financial, Inc. is Nessa
Financial Corp., with a business address of 60 Market Square, P.O. Box 364,
Belize City, Belize.
There are no arrangements or understandings among the entities and
individuals referenced above or their respective associates concerning election
of directors or other any other matters which may require shareholder approval.
17
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
No report required.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Board of Directors authorized and directed the submission of an
Information Statement pursuant to Section 14(c) of the Securities Exchange Act
of 1934, as amended (the "Information Statement"). The Information Statement was
filed with the Securities and Exchange Commission on February 10, 2003. It is
anticipated that the Information Statement will be circulated to the
shareholders of the Company in connection with the taking of corporate action
without a meeting upon the written consent of ten (10) or less shareholders
holding of record a majority of the outstanding shares of the Company's common
stock (the "Written Consent"). The effective date of the Written Consent is
approximately March 25, 2003.
The matters upon which action is proposed to be taken pursuant to the
Written Consent are: (i) to authorize the Board of Directors to effect a reverse
stock split of one-for-twenty (the "Reverse Stock Split") of the Company's
outstanding Common Stock, depending upon a determination by the Board of
Directors that a Reverse Stock Split is in the best interests of the Company and
its shareholders; (ii) to approve the election of the following person to serve
as a director of the Company until the next annual meeting of the Company's
shareholders or until his successor has been elected and qualified: Grant
Atkins; (iii) to approve a stock option plan for key personnel of the Company
(the "Stock Option Plan"); and (iv) to ratify the selection of LaBonte & Co. as
the Company's independent public accountants for the fiscal year ending March
31, 2003.
ITEM 5. OTHER INFORMATION
No report required.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
99.2 Certification Pursuant to 18 U.S.C. Section 1350.
(b) Reports
Report on Form 8-K filed on November 14, 2002.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
VEGA-ATLANTIC CORPORATION
Dated: February 14, 2003 By: /s/ Grant Atkins
---------------------------------
Grant Atkins, President and Chief
Executive Officer
18