FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the fiscal year ended:December 31, 1996
Commission file number:001-10156
Original Sixteen to One Mine, Inc.
(Exact name of registrant as specified in its charter)
California 94-0735390
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Post Office Box 1621, Alleghany, CA 94910
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:916-287-3223
Securities registered pursuant to section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common stock, par The Pacific Stock
Value $.10 per share Exchange Incorporated
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 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
The aggregate market value of voting stock held by non-affiliates
of the registrants: $10,133,078 on March 14, 1997.
PART I
ITEM 1: BUSINESS
Description of Business
Original Sixteen to One Mine, Inc. (the "Company") mines gold on
properties it owns or on which it has claims, in and around the
town of Alleghany in the California Gold Country, about 65 miles
northeast of the intersection of I-80 and California State Route
49.
The Company's primary operation is the Sixteen to One Mine from
which more than 1,100,000 ounces of gold have been retrieved
since the mine commenced operation in 1896. The Company began
doing business in its present form in 1911 and has operated
continuously ever since. Unlike the common image of California
`49ers panning for gold, the Company's operation is a hard rock
underground mine in which the Company sinks diagonal shafts
("winzes") from which the miners create horizontal tunnels at
various levels. The Company's activities are presently focused
on the 800 foot level, the 2400 foot level, and the 2600 foot
level. When the miners are tunneling, they average about 6
linear feet of progress per day. Periodically, the miners drift
outward on quartz veins. Many areas within the quartz veins do
not contain gold; however, on the Company's property, the gold
appears primarily in quartz veins. Because the gold appears
intermittently, the Company makes no claim of reserves.
The Company's operations are characterized by significant amounts
of preparation, tunneling, mine maintenance and upgrading, all of
which are necessary to permit the location and extraction of the
gold. The Company from time to time focuses substantially all of
its resources on infrastructure development and maintenance, and
during those periods, little gold is mined. At other times, the
Company's miners are primarily searching for gold. Accordingly,
the Company's business is subject to two very different cycles,
one dependent on whether the Company is directing its resources
towards infrastructure or towards mining and the other as a
function of the productivity of current mining operation. In
1996, the Company devoted substantial resources to the
maintenance of the mine and development of infrastructure; in
1994, the Company has also devoted substantial resources to
sinking a new winze to permit the exploration of additional areas
of the mine. Mining is classically a "boom or bust" activity,
and the Company's operations fit that description.
The Company uses existing metal detection technology which
enables miners to detect gold approximately 20 to 30 inches in
from the tunnel wall, and the Company frequently works with other
companies to develop new technologies potentially permitting non-
invasive exploration substantially further within the rock wall.
The Company makes its mine available to third parties for the
purposes of researching and developing new detection technology.
These arrangements allow the Company to benefit from research
activities without incurring the costs usually associated with
research and development.
For accounting purposes, gold revenues are accrued when the metal
has been mined and recovered. However, for tax purposes,
revenues are not recognized until the gold has been sold.
Although most of the Company's gold is sold as refined bullion,
the Company has additional value-added ways to sell its gold.
The Company markets rare high-grade gold and quartz specimens at
a premium to museums, collectors and jewelers, and it also
manufactures its own jewelry and sells its own proprietary mine
bars.
The Company has no extraordinary working capital requirements,
and the Company is not dependent on any particular customer or
few customers, as commodity gold has multiple markets and gold
jewelry is sold to a rather diversified customer base. The
Company has no backlog of orders, but rather sells gold from its
inventory as needed to finance its operation. The Company does
not believe that it operates in a materially competitive context;
the Company's operating results generally reflect the efficiency
with which it locates gold.
The raw materials and equipment used for mining are commonly
available, and the Company has generally been able to satisfy its
labor requirements. The Company believes that both within the
Original Sixteen to One Mine and in the Brown Bear Mine, which
the Company acquired in 1994, the Company has a substantial
number of attractive exploration opportunities.
There is no particular seasonality to the marketing of gold
(other than the Company's gold jewelry sales for which some
modest bias toward the fourth quarter is noted), and the
Company's business is not otherwise seasonal except for the
generally modest effect of winter storms on the ability of the
Company's miners to come to work.
Management believes that the Company is in substantial compliance
with all applicable federal, state and local laws and regulations
relating to the discharge of materials into the environment. The
Company does not presently anticipate any material estimated
capital expenditures for environmental control facilities, either
for the remainder of its current fiscal year of for the
succeeding fiscal year.
Risk Factors
(a) Price of Gold
The price of gold has been flat to down (with a few periodic
exceptions) over the past three years, probably reflecting
diminished inflationary expectations. Any significant drop in
the price of gold may have a material adverse effect on the
results of the Company's operations unless the Company is able to
offset such a price drop by substantially increased production.
(b) Lack of Proven Reserves
As noted above, the Company is unable to predict if, where or
when gold will be found and mined. While (i) the Company has
recovered over 28,000 ounces of gold since January 1992 and (ii)
management believes that substantial additional unrecovered gold
exists in the Sixteen to One. The Company has no ability to
measure or prove its reserves and thus may be unable to obtain
additional debt or equity financing when needed.
(c) Governmental Regulation
All mining operations are subject to substantial governmental
regulation at every level related both to mining safety and to
environmental protection. Compliance with these regulations may
cause significant delays in the operation of the Company as well
as substantial capital and operating expenses. While the Company
believes it is currently operating in compliance with all known
safety and environmental standards and regulations, there can be
no assurance that it is in such compliance or that future changes
in the laws, regulations or interpretations thereof will not have
a material adverse effect on the results of the Company's
operations.
(d) Labor Pool
The Company believes it has been fortunate in attracting and
retaining talented and dedicated miners. However, with an
increasingly tight employment market and substantial competition
for experienced miners at gold mining sites within a 300 mile
radius, there can be no assurance that the Company will continue
to have available the services of an appropriate underground
mining force.
(e) Liquidity
The Company's gold inventory at December 31, 1996 was over $1.1
million (carried at the spot price for gold). Much of that
inventory is in the form of specimens or gold held for jewelry.
The Company may experience periodic shortfalls in liquidity which
are not likely to be bridged by institutional debt financing.
Management will address these issues from time to time as they
arise, which may involve the sale at commodity prices of gold
held for specimen or jewelry sale.
(f) Dependence on Key Personnel
The Company has 46 full time employees, the majority of whom are
actively engaged in mining operations. The Company is
substantially dependent upon the continued services of Michael
Miller, its President. The Company has no employment agreement
with Mr. Miller, nor is there either key person life insurance or
disability insurance on Mr. Miller. Accordingly, there can be no
assurance that Mr. Miller's services will remain available to the
Company. If Mr. Miller's services are not available to the
Company, the Company will be materially and adversely affected.
The Company is a California corporation formed October 11, 1911.
At December 31, 1996, it had 46 full time employees. The
Company's executive office is located at 527 Miners Street,
Alleghany, California 95910. The Company's phone number is 916-
287-3223.
ITEM 2: PROPERTIES
Properties
The Company's Sixteen to One mine was acquired in 1911, and
additional properties were acquired prior to 1925; all of these
properties have been carried on the Company's books at their
original purchase price and have been fully amortized through
depletion. The Company has acquired mining properties for
$105,517 and $300,000, but no depletion has been applied to those
properties.
In 1991, the Company purchased a 200 ton per day mill, which it
upgraded in 1996 after a fire damaged the facility. The Company
believes that it has all necessary permits and licenses to
conduct a mining and milling business. The Company's Original
Sixteen to One Mine, located in the town of Alleghany,
California, is accessed by a road maintained by the Company. The
mouth of the mine is approximately one-half mile from a county
road.
The Company's Alleghany properties consist of 28 patented claims
(412 acres subject to subsurface access but with paramount title
held by the Bureau of Land Management of the Department of the
Interior), of which five are leased by the Company. In 1994, the
Company purchased the Brown Bear Mine in the French Gulch Mining
District, consisting of 34 patented claims (550 acres) and 22
unpatented claims (400 acres). The following table sets forth
further information with respect to the Company's mining claims.
ALLEGHANY DISTRICT:
PATENTED MINING CLAIMS OWNED 100% BY THE COMPANY
NAME OF CLAIM NAME OF CLAIM
Belmont Rainbow Fraction
Number Three Twenty-One
Eclipse Quartz Eclipse Extension
Tightner Extension Contract
Alene Valentine
Red Star Bartlett
Farnham Gold Quartz Mine Belmont #2
Contract Extension Hanley Quartz Mine
Noble Sixteen to One
Groves Gold Quartz Mine Denver
Happy Jack Extension Ophir
Rainbow Extension Happy Jack
UNPATENTED MINING CLAIMS OWNED 100% BY THE COMPANY
NAME OF CLAIM NAME OF CLAIM
La Jard Lode Tightner No. 4 Lode
Tagalog Lode Bald Mountain Placer #2
Tightner # 5 Lode Cumberland Lode
Oversight Lode Tightner No. 6 Lode
Aurora Lode Tightner No. 1 Lode
East Bartlett Lode Copeland Two Lode
Tightner No. 2 Lode Red Star Ext Placer
Antique Lode Tightner No. 3 Lode
Buckeye Placer Bullion Lode
Alene Ext Lode Amethyst Lode
Lava #1 Lode Bartlett Ext Lode
Amethyst Ext Lode Lava #2 Lode
Illocano Lode Mabel Lode
Lava #3 Lode Bal Lode
Margaret Lode Alling One Lode
Verde Lode Phoebe Lode
Alling Two Lode Butterfly Lode
Blue Jay Lode Lady Bug Lode
North Star Lode Triple M Lode
South Fork Placer Honey Bee Lode
Mayflower Lode Copeland One Lode
Bald Mountain Placer Parkman Placer
Oregon Creek Placer Apache
Patriot Patriot Extension
Tomahawk Thunderbolt
Bradley Hercules
Hercules Extension
PATENTED MINING CLAIMS LEASED BY THE COMPANY*
NAME OF CLAIM NAME OF CLAIM
Osceola Colorado
Yellow Jacket Colorado Extension
UNPATENTED MINING CLAIM LEASED BY THE COMPANY*
NAME OF CLAIM
Osceola Fraction Lode
*Lease expiration date on these claims is December 31, 1998
FRENCH GULCH DISTRICT:
PATENTED MINING CLAIMS OWNED 100% BY THE COMPANY
NAME OF CLAIM NAME OF CLAIM
Dreadnaught Quartz Lode Coon Dog Quartz Lode
North Fork Quartz Lode Madison Quartz Lode
North Fork No. 2 Quartz Mine Martin Quartz Lode
Gem Quartz Lode Brown Bear Ext. Qtz. Lode
Slide Quartz Lode Red Diamond Quartz Lode
Abernathy Quartz Lode New World Quartz Lode
North Pole Quartz Lode Cube Quartz Lode
White Bear Quartz Lode Highland Mary Quartz Lode
Comet Quartz Lode Dead Horse Quartz Lode
Monte Cristo Gold Lode Belmont Quartz Lode
Rising Sun Quartz Lode Capital Gold Quartz Lode
Enterprise Gold Quartz Lode New World Quartz Lode
Last Chance Gold Lode Black Bear Gold Lode
Barted Gold Quartz Mine Queen Gold Quartz Gold
Brown Bear Gold Quartz Mine Shoofly Gold Mining Claim
Watt Quartz Lode Melton Quartz Lode
Deadwood Placer Mining Lode Sebastian Placer Quartz
Lode
UNPATENTED MINING CLAIMS OWNED 100% BY THE COMPANY
NAME OF CLAIM NAME OF CLAIM
Lost Hope Cardinal No. 1
Cardinal No. 2 Cardinal No. 3
Cardinal No. 4 Cardinal No. 5
Cardinal Fraction No. 1 Cardinal Fraction No. 2
Cardinal Fraction No. 3 Cardinal Fraction No. 4
Cardinal Fraction No. 5 Cardinal Fraction No. 6
Cardinal Fraction NO. 7 Cardinal Fraction No. 8
Cardinal Fraction NO. 9 Cardinal Fraction No.10
Coon Dog Extension Golden Bear No. 1
Golden Bear No. 2 Luck Boy
Sunny Point Sunny Point No. 2
Governmental Regulation
Mining is generally subject to regulation by state regulatory
authorities. In most states, the production of gold is regulated
by conservation laws and regulations. State and federal statutes
regulate environmental quality, safety, exploration procedures,
reclamation, employees health and safety, use of explosives, air
quality standards, pollution of stream and fresh water sources,
noxious odors, noise, dust, and other environmental protection
controls as well as the rights of adjoining property owners.
While laws may change preventing or delaying the commencement or
continuance of given operations, no material expenditures for
environmental control facilities are foreseen in the near future.
ITEM 3: LEGAL PROCEEDINGS
Not applicable.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Market Information
The Company's common stock is traded on the Pacific Stock
Exchange under the symbol OAU.
1996 1995
Price range High Low High Low
1st quarter 4-5/8 3-3/4 3-15/16 3-1/4
2nd quarter 4-3/4 4-5/16 3-3/4 2-5/8
3rd quarter 4-9/16 4-1/8 5-1/4 3-1/8
4th quarter 4 3-3/4 4-7/8 3-3/4
Holders
As of December 31, 1996, there were 834 holders of common stock.
Dividends
The Company declared a special dividend of $.05 per share on
August 7, 1995, paid on September 10, 1995. The payment of
future dividends will be dependent upon the extent of gold
production and planned expenditures for mining or acquisitions.
ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
(a) Comparison of 1996 with 1995
The Company's revenues decreased 46% from 1995 to 1996. The
primary reason for the drop in revenue was that the results for
1995 had been augmented by a material discovery in August 1995,
at which time $2,000,000 worth of gold was mined in a ten day
period. Total gold production decreased from 6,505 troy ounces
in 1995 to 3,956 troy ounces in 1996. In the context of modest
inflation, the closing spot price of gold decreased from nearly
$397 at the end of 1995 to nearly $370 at the end of 1996. The
Company's compensation expenses in 1996 increased by $238,493
(30%) from the $804,368 incurred in 1995, primarily because the
Company's payroll expanded from 37 full time employees to 46 full
time employees thorough the course of the year as the Company
added both miners and administrative employees. The Company also
spent $91,864 more than it spent in 1995 for supplies, primarily
because the Company directed its attention to certain repair and
refurbishment activities which had been deferred when the Company
was focusing its activities on vertical, rather than lateral,
extension of the mine and infrastructure rehabilitation.
Contract labor decreased $14,178 (19%) because the Company took
over certain tasks previously performed by independent
contractors. Utilities increased a modest $3,970.
Other modest decreases occurred with "Small Equipment & Repairs"
expenses of $4,198 and "Office Expenses" of $5,777. "Drayage"
increased by $18,014 due to increases in supplies bought and
shipped to the mine site in Alleghany. "Promotion" increased
$26,342 (112%). This increase reflects the additional costs
attributed to the developing gold jewelry and specimen sales
department and more attention to investor relations than in prior
years. "Legal and Accounting" expenses increased $52,046 (90%).
A primary area of change is the separation of revenues and
expenses of the gold sales department from general corporate
which generated extraordinary hardware, software and its
installation.
As a result, the Company's operating results decreased from a
profit of $732,124 ($0.21 per share) to a loss of $654,468 ($0.19
per share).
(b) Comparison of 1995 with 1994
Revenues increased 121% from $1,200,913 to $2,655,575, primarily
as a result of the August 1995 gold strike referred to above.
The Company's compensation expense in 1995 increased by $299,339
(59%) from the $505,029 incurred in 1994 primarily because the
Company's payroll expanded from twenty-nine full time employees
in 1994 to thirty-seven full time employees in 1995. Also, the
Company paid bonuses to all its employees based on the $2,000,000
gold find in July 1995. Not included in the above figures were
payroll taxes and payroll related insurance benefits which
increased $63,531.
"Contract Labor" increased $39,766 (110%). Certain specific
underground mining projects were let to contractors instead of
increasing the number of employees too quickly. Also, certain
surface projects necessary to facilitate the Company's growth
were all performed by independent contractors.
"Utilities", especially electrical, increased $52,600 (91%).
This increase reflects the change in direction in underground
mining from small block mining in 1994 to major ground
development, requiring hoisting miners, supplies, waste rock and
ore.
"Supplies" increased $177,777 (246%) and "Small Equipment &
Repairs" increased $33,426 (85%) reflecting both the previously
stated changes in the plan of operation and long overdue
attention to underground and surface repairs and improvements.
"Drayage" increased $23,014 (103%) due to increases in supplies
bought and shipped to the mine site in Alleghany.
"Legal & Accounting" decreased $41,638 (42%) reflecting the
winding down of litigation in 1995 related to the Company's suit
to preserve the integrity of its mine holdings in Alleghany.
Promotion, office expenses and other expense comparisons are
insignificant.
As a result, the Company's net income increased from $157,673
($0.04 per share) to $732,124 ($0.21 per share) in 1995.
(c) Balance Sheet Comparisons of 1996 with 1995
The Company's current assets decreased $1,216,424 (50%) as gold
was sold from inventory. Proceeds from these sales were used for
operating expenses and capital acquisition. Fixed assets, at
cost and mining property increased $449,726. Total assets
decreased $869,343 (21%).
The Company's current liabilities decreased $187,963 (18%). The
primary reductions were income tax payable and deferred income
taxes which totaled $341,000. Accounts payable and accrued
compensation increased $95,696, while a related party advanced
the Company $54,000 in 1996. A $26,000 note receivable from an
employee was repaid in 1996. Retained earnings decreased from
$1,366,131 to $711,663 or a decrease of $654,468. Total
stockholder's equity decreased $677,481 (22%).
(d) Liquidity and Capital Resources
The Company's liquidity (i.e., its ability to generate adequate
amounts of cash to meet its needs for cash) is substantially
dependent upon the results of its operations. While the Company
does maintain a gold inventory which it can liquidate from time
to time to satisfy its working capital needs, there can be no
assurance that such inventory will be adequate to sustain
operations if the Company's gold mining activities are not
successful. Because of the unpredictable nature of the gold
mining business, the Company cannot provide any assurance with
respect to long-term liquidity. In addition, if the Company's
mining operation does not produce meaningful additions to
inventory, the Company may determine it is necessary to satisfy
its working capital needs by selling gold in bullion form.
The Company is dependent on continued recovery of gold and sales
of gold from inventory to meet its cash needs. Although the
Company has historically located at least $1.2 million of gold in
each of the last five years, there can be no assurance that the
Company's efforts in any particular period will provide
sufficient funding for the Company to continue operations. The
Company has a fully extended line of credit with a bank.
If the Company's cash resources are inadequate and its gold
inventory is depleted, the Company may seek debt or equity
financing on the most reasonable terms available.
ITEM 7: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of the Company are attached at the end
of this document.
ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 9: DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Officers and Directors
The following table sets forth the Officers and Directors of the
Company. The directors listed below will serve until the next
annual shareholders meeting to be held on June 14, 1997. All of
the officers of the Company serve at the pleasure of the board of
directors.
Name Age Position Officer Since Director Since
Charles I. Brown 65 Treasurer
& Director 1990 1986
Leland O. Erdahl 68 Director ---- 1992
Sandor Holly 64 Director ---- 1997
Michael M. Miller 54 President
& Director 1983 1977
Richard C. Sorlien 74 Secretary
& Director 1990 1986
Charles I. Brown-Director and Treasurer
Mr. Brown, from February 1, 1992 until his retirement on February
1, 1997, served as a Director and Executive Vice President, and
as the Chief Financial Officer of Integrated Medical Systems,
Inc. ("IMS"), which was acquired by Eli Lilly and Company in
December 1995. From 1983 to 1992, he was active as a financial
consultant to, and a director of, several banks and corporations.
He was Chairman of American National Bank-Laramie, Laramie,
Wyoming, Chairman of the Rawlins National Bank, Rawlins, Wyoming,
Chairman of Prudential Bank of Denver, Colorado, and he continues
to be a Director of Izzo Systems, Inc. From 1974 to 1982, he
served as Senior Vice President and Director of Energy Fuels
Corporation, a privately owned mining company acquired by Getty
Oil Company in 1982. From 1959 to 1974, he served as Vice
President/Finance and Director of Western Nuclear, Inc., acquired
by Phelps Dodge Corporation in 1970. He is a Trustee of the
Colorado State University Research Foundation and the Colorado
Outward Bound School. He is a member of the American Alpine
Club. Mr. Brown received a Master of Business Administration,
with distinction, from Harvard University in 1959 and a Bachelor
of Arts, in geology, from Williams College in 1954. He was born
in Bombay, India.
Leland O. Erdahl-Director
Mr. Erdahl is a director Canyon Resources Corporation, Uranium
Resources, Inc. and Hecla Mining Company. He is also a trustee
for a group of John Hancock Mutual Funds. He is also a
director of Santa Fe Ingredients Co., Inc. and Santa Fe
Ingredients Co. of California, Inc., private food processing
companies. Mr. Erdahl has been an active participant in the
mining industry most of his life. From 1970 until 1984 he held
executive offices including President and Chief Executive Officer
with Ranchers Exploration and Development Corporation, a
diversified mining company. From 1987 to 1992, Mr. Erdahl was
President and Chief Executive Officer of Stolar, Inc., a company
active in using underground radio communications and geologic
imaging to assist mine operators. Mr. Erdahl is a graduate of
the college of Santa Fe with a degree in business administration,
and is a certified public accountant. He was born in Doland,
South Dakota.
Sandor Holly-Director
Mr. Holly has been employed by Rocketdyne since 1976 in various
assignments including the design of Pulsed Wavefront Sensor,
interferometric sensor systems development and multi-wavelength
probe laser fabrication. He is the recipient of eighteen patents
including one of the first Free Electron Laser patents issued by
the U.S. Patent Office in 1960. He is active in national and
international conferences in Switzerland, Hungary, Germany, Japan
and Russia. He was born in Budapest, Hungary in 1933, graduating
from ELTE University of Sciences in 1955. He received the
following degrees: M.S. (Electrical Engineering) from MIT in
1960; S.M. (Physics) from Harvard University in 1962; Ph.D.
(Applied Physics) from Harvard University in 1969; and Post
Doctoral (Modern Optics) from Northeastern University in 1970.
Michael M. Miller-Director, President and CEO
As President and Chief Executive Officer , Mr. Miller is
responsible for the day-to-day operations of the Company. In
1975, Mr. Miller became the sole proprietor of the Morning Glory
Gold Mines. Prior to that, he was self-employed in Santa Barbara
County, California from 1965 to 1974. Mr. Miller served as a
trustee and President of the Sierra County Board of Education
(1979 to 1983 trustee) (President in 1983). Since 1991 he has
served as a member of the Sierra County Planning Commission
(Chairman 1992 and 1993). Mr. Miller is licensed as a California
Class A general engineering contractor. He is a member of the
American Institute of Mining Engineers. In 1965, Mr. Miller
received a B.A. from the University of California at Santa
Barbara in combined Social Sciences-Economics. He was born in
Sacramento, California.
Richard C. Sorlien-Director and Secretary
Mr. Sorlien served as a partner for 33 years and of Counsel for
six years with the Philadelphia, Pennsylvania law firm of Pepper,
Hamilton and Scheetz. (He retired from the firm in March, 1997.)
Mr. Sorlien served 22 years as a Director of the Glenmede Trust
Company in Philadelphia. He also served as a Director and
Corporate Secretary of the Cressona Aluminum Company of Cressona,
Pennsylvania from 1979 until January 1996. He is a Director of
the International Lawn Tennis Club of the United States. He owns
the Alaska Mine and Tree Farm in Pike, California. Mr. Sorlien
received a Bachelors of Arts degree (A.B.) from Harvard
University in 1947, and earned his law degree (L.L.B.) from
Harvard Law School in 1949. He was born in Minneapolis,
Minnesota.
ITEM 10: EXECUTIVE COMPENSATION
Remuneration of Directors and Executive Officers
Total compensation for each Director, excluding the President,
consists of $750 per meeting attended and a $2,000 retainer
effective January 1, 1994.
The Company has not paid or distributed and does not pay or
distribute cash or non cash compensation to officers, directors
or employees under any retirement, pension or other plans, and
has no intent to do so in the future.
In April, 1996, the Board of Directors adopted, subject to
shareholders approval, the Company's Stock Incentive Plan.
Shareholders approved the plan on June 22, 1996. Shareholders
also approved the Company's Non-Employee Director's Stock Option
Plan. A five thousand share option was granted to three
directors on June 30, 1996 at a purchase price of $4.5625 per
share, and similar grants will automatically be made each year.
Management Remuneration for the Period Ended December 31, 1995.
Name/
Principal Annual
Position Year Salary Bonus Compensation Securities
Michael Miller/ 1996 $105,000 $20,000 ----- -----
President & CEO 1995 $ 99,840 ----- ----- -----
1994 $ 98,444 ----- ----- -----
Current Management Remuneration
Mr. Miller was awarded a $20,000 bonus based on performance for
1995; although the bonus was paid in March 1996. There were no
increases or bonuses granted to the president during 1996.
ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Security Ownership of Certain Beneficial Owners and Management
Title of Name and Address Amount and Nature Percent
Class of Beneficial Owner of Beneficial Owner of Class
Common M. Blair Hull 492,750 14%
Hull Trading Co.
401 So. LaSalle, Ste. 505
Chicago, IL 60605
Common Kathy N. Hull 500,750 14%
11 Sierra Ave.
Piedmont, CA 94611
Common Michael M. Miller 344,750 10%
P.O. Box 941
Alleghany, CA 95910
Common Charles I. Brown 171,900 5%
Family Partnership, LTD
2691 Pinehurst Drive
Evergreen, CO 80439
Common Richard Sorlien 87,250 2.5%
3000 Two Logan Square
18th & Arch Street
Philadelphia, PA 19103
Common Sandor Holly 5,000 .14%
23801 Ladrillo Street
Woodland Hills, CA 91367
Security Ownership of Management Including Officers and Directors
Title of Percent
Class Name Amount of Class
Common Charles I. Brown 171,900 5%
Officer and Director
Common Sandor Holly 5,000 .14%
Director
Common Michael M. Miller 344,750 10%
Officer and Director
Common Richard C. Sorlien 87,250 2.5%
Officer and Director
Common All Officers & Directors 597,000 17%
as a group
ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
PART IV
ITEM 13: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) 1 and 2. Financial Statements
The financial statements listed in the accompanying
index to financial statements are filed as part this report.
3. Exhibits
The exhibits listed on the accompanying index to exhibits are
filed as part of this annual report.
No reports on Form 8-K were required to be filed
INDEX TO EXHIBITS
Method of
Exhibit No. Filing
3 Articles of Incorporation Incorporated
by reference
4 Stock Certificate Incorporated
by reference
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this Annual Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ORIGINAL SIXTEEN TO ONE MINE, INC.
Registrant
By:/s/Richard C. Sorlien
Richard C. Sorlien
Secretary and Director, March 14, 1997
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated:
/s/Michael M. Miller
Michael M. Miller
President and Director, March 14, 1997
/s/Charles I. Brown
Charles I. Brown
Treasurer and Director, March 14, 1997
/s/Leland O. Erdahl
Leland O. Erdahl
Director, March 14, 1997
/s/Sandor Holly
Sandor Holly
Director, March 14,1997
<PAGE>
THE ORIGINAL SIXTEEN TO ONE MINE, INC.
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
(ITEM 14 (a) 1 and 2)
Page
Independent Auditor's Report F-1
Balance Sheet at December 31, 1996 and 1994 F-2
Statement of Operations for each of the
three years in the period ended
December 31, 1996 F-4
Statement of Stockholders' Equity for each of
the three years in the period ended
December 31, 1996 F-5
Statements of Cash Flows for each of the three
years in the period ended December 31, 1996 F-6
Notes to financial statements F-9
All other schedules are omitted since the required information is
not present or is not present in amounts sufficient to require
submission of the schedule, or because the information required
is included in the financial statements and notes thereto.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Original Sixteen to One Mine, Inc.
We have audited the accompanying balance sheet of Original
Sixteen to One Mine, Inc. as of December 31, 1996 and 1995, and
the related statements of operations, stockholder's equity and
cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Original Sixteen to One Mine, Inc. at December 31, 1996, and
1995, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
Perry-Smith and Company
Certified Public Accountants
Sacramento, California
February 21, 1997
F-1
<PAGE>
ORIGINAL SIXTEEN TO ONE MINE, INC.
BALANCE SHEET
December 31, 1996 and 1995
1996 1995
ASSETS
Current Assets:
Cash $ 31,640 $ 180,618
Accounts receivable 20,571 13,370
Inventory 1,138,041 2,228,192
Other current assets 25,056 9,552
--------- ----------
Total Current Assets 1,215,308 2,431,732
Mining property (Note 2):
Real estate and property rights,
net of depletion of $524,145 182,091 105,517
Mineral property 415,263 415,263
Development costs 898,985 714,037
--------- ----------
1,496,339 1,234,817
Fixed assets at cost:
Equipment 822,620 693,703
Buildings 144,462 143,250
Vehicles 176,086 118,011
--------- ----------
1,143,168 954,964
Less accumulated depreciation (665,583) (568,689)
--------- ----------
Net fixed assets 477,585 386,275
Other assets, net of accumulated
amortization of $41,007 and
$35,256 in 1996 and 1995,
respectively 28,493 34,244
--------- ---------
Total Assets $3,217,725 $4,087,068
========== ==========
(Continued)
F-2
<PAGE>
ORIGINAL SIXTEEN TO ONE MINE, INC.
BALANCE SHEET
(Continued)
December 31, 1996 and 1995
LIABILITIES & STOCKHOLDERS' EQUITY
1996 1995
Current Liabilities:
Accounts Payable & Accrued
Compensation $ 151,734 $ 56,038
Related Party Advances (Note 7) 54,000
Note Payable due within one
year (Note 3) 267,793 264,452
Income Taxes Payable (Note 5) 0 84,000
Deferred Income Tax (Note 5) 375,000 632,000
--------- ----------
Total Current Liabilities 848,527 1,036,490
--------- ----------
Notes Payable due after one
year (Note 3) 11,924 15,823
--------- ----------
Total Liabilities 860,451 1,052,313
--------- ----------
Stockholders' Equity (Note 4):
Common Stock, par value $.10;
10,000,000 shares authorized
in 1996 and 1995; 3,504,065
and 3,513,062 shares issued
and outstanding in 1996 and
1995, respectively 350,407 351,306
Additional paid-in capital 1,321,204 1,369,318
Notes Receivable from employees (26,000) (52,000)
Retained Earnings 711,663 1,366,131
--------- ----------
Total Stockholders' Equity 2,357,274 3,034,755
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $3,217,725 $4,087,068
========== ==========
The accompanying notes are an integral
part of these financial statements.
F-3
<PAGE>
ORIGINAL SIXTEEN TO ONE MINE, INC.
STATEMENT OF OPERATIONS
For Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
Revenues:
Gold and Jewelry Sales $1,442,459 $2,655,575 $1,200,913
---------- ---------- ----------
Operating Expenses:
Salaries and Wages 1,042,861 804,368 505,029
Depreciation & Amortization 102,645 123,235 102,150
Contract Labor 61,613 75,791 36,025
Telephone & Utilities 114,385 110,415 57,815
Taxes: Property & Payroll 164,933 117,214 107,820
Insurance 189,783 125,052 70,915
Supplies 342,027 250,163 72,386
Small Equipment & Repairs 68,537 72,735 39,309
Drayage 63,390 45,376 22,362
Promotion 49,867 23,525 23,819
Office Expenses 7,564 13,341 11,602
Legal & Accounting 109,600 57,554 99,192
Other Expenses 73,000 64,762 65,132
========= ========= =========
Total Operating Expenses 2,390,205 1,883,581 1,213,556
(Loss) Income
from Operations (947,746) 771,994 (12,643)
Other Income 26,278 181,130 155,316
--------- --------- ---------
(Loss) Income before
Income Taxes (921,468) 953,124 142,673
Income Tax Benefit
(expense),(Note 5) 267,000 (221,000) 15,000
--------- --------- ---------
Net (loss) Income $ (654,468) $ 732,124 $ 157,673
========== ========== ==========
(Loss) Earnings per
Share of Common Stock $ (.19) $ .21 $ .04
----------- ---------- ----------
Weighted Average
Shares Outstanding $3,507,730 $3,508.291 $3,507,994
The accompanying notes are an integral
part of these financial statements.
F-4
<PAGE>
<TABLE>
ORIGINAL SIXTEEN TO ONE MINE, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1996, 1995 and 1994
<CAPTION>
NOTES
RECEIVABLE TOTAL
COMMON STOCK PAID-IN FROM RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EMPLOYEES EARNINGS EQUITY
--------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 3,507,994 $ 350,799 $ 1,325,011 $ (52,000) $ 651,734 $ 2,275,544
Net income 157,673 157,673
--------- ----------- ----------- ------------ ----------- -----------
Balance, December 31, 1994 3,507,994 350,799 1,325,011 (52,000) 809,407 2,433,217
Retired common stock (16,300) (1,630) (53,556) (55,186)
Conversion of note payable
to common stock 21,368 2,137 97,863 100,000
Dividends paid (175,400) (175,400)
Net income 732,124 732,124
--------- ----------- ----------- ------------ ----------- ------------
Balance, December 31, 1995 3,513,062 351,306 1,369,318 (52,000) 1,366,131 3,034,755
Retired common stock
(Note 4) (8,997) (899) (48,114) 26,000 (23,013)
Net loss (654,468) (654,468)
--------- ----------- ------------ ------------- ------------ -----------
Balance, December 31, 1996 3,504,065 $ 350,407 $ 1,321,204 $ (26,000) $ 711,663 $ 2,357,274
========= ========== =========== =========== ============ ===========
<FN>
The accompanying notes are an integral
part of these financial statements.
F-5
</FN>
</TABLE>
ORIGINAL SIXTEEN TO ONE MINE, INC.
STATEMENT OF CASH FLOWS
For the Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
Cash flows from operating
activities:
Net (loss) income $ (654,468) $ 732,124 $ 157,673
Adjustment to reconcile
net (loss) income to
net cash provided by
operating activities:
Depreciation and
amortization 102,645 123,285 102,150
(Increase) decrease in
accounts receivable (7,201) 3,690 (6,831)
Decrease (increase) in
inventory 1,090,151 (460,620) 494,316
(Increase) decrease in
other current assets (15,504) 18,231 (18,692)
Increase (decrease) in
accounts payable &
accrued compensation 95,696 (9,444) (84,717)
(Decrease) increase in
income taxes payable (80,000) 55,800 28,200
(Decrease) increase in
deferred income taxes (261,000) 108,000 (44,000)
---------- --------- --------
Net cash provided
by operating
activities 270,319 571,066 628,099
---------- -------- ---------
Cash flows from investing
activities:
Purchase of fixed assets
and mining property (264,778) (189,002) (115,575)
Capitalization of
development costs (184,948) (347,848) (366,189)
Capitalization of legal
costs (86,633)
---------- -------- --------
Net cash used
in investing
activities (449,726) (536,850) (568,397)
========== ======== ========
(Continued)
F-6
<PAGE>
ORIGINAL SIXTEEN TO ONE MINE, INC.
STATEMENT OF CASH FLOWS
(Continued)
For the Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
Cash flows from financing
activities:
Increase in related
party advances $ 54,000
Common stock repurchased (23,013) $ (55,186)
Repayment of notes payable (3,531) (51,371) $ (100,000)
Issuance of notes payable 2,973 281,646
Dividends paid (175,400)
--------- ---------- ---------
Net cash used
in financing
activities 30,429 (311) (100,000)
(Decrease) increase
in cash (148,978) 33,905 (40,298)
Cash at beginning of year 180,618 146,713 187,011
--------- ---------- ---------
Cash at end of year $ 31,640 $ 180,618 $ 146,713
========= ========= =========
Supplemental schedule of
cash payments:
Cash paid during the
year for:
Interest expense $ 25,190 $ 29,493 $ 4,515
Income taxes $ 90,900 $ 57,200 $ 800
Supplemental schedule of
noncash inventing and
financing activities:
Cancellation of note
receivable & accrued
interest through
surrender & retirement
of 7,194 shares of the
Company's common stock
(Note 4) $ 33,300
Purchase of mineral
property:
$300,000 through issuance
of a $250,000 promissory
(Continued)
F-7
<PAGE>
ORIGINAL SIXTEEN TO ONE MINE, INC.
STATEMENT OF CASH FLOWS
(Continued)
For the Years Ended December 31, 1996, 1995 and 1994
1996 1995
1994
note & a $50,000 deposit.
$100,000 of the note was
paid during 1994. $ 150,000
Issuance of 21,368 shares
of the Company's common
stock to repay promissory
note. $ 100,000
The accompanying notes are an integral
part of these financial statements.
F-8
<PAGE>
ORIGINAL SIXTEEN TO ONE MINE, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Original Sixteen to One Mine, Inc. (the Company) was incorporated
in 1911 and is actively involved in operating gold mines in
Alleghany, California.
INVENTORY
Inventory consists of gold bullion, specimens and jewelry
recorded at the quoted market price for gold bullion. Gold
bullion held in the Company's name by the smelter is accounted
for using the FIFO method. All other gold inventory is
accounted for using the specific identification method.
FIXED ASSETS
Fixed assets are stated at historical cost. Depreciation is
calculated using straight-line and accelerated methods over the
following estimated useful lives:
Vehicles 3 to 5 years
Equipment 5 to 7 years
Buildings 18 to 31.5 years
DEPLETION POLICY
Because of the geological formation in the Alleghany Mining
District, estimates of ore reserves currently cannot be
calculated, and accordingly, a cost per unit depletion factor
cannot be determined. Should estimates of ore reserves become
available, the units of production method depletion will be used.
Until such time, no depletion deduction will be recorded (see
Note 2).
MINE REHABILITATION
The costs of mine rehabilitation are expensed as incurred.
DEVELOPMENT COSTS
In February, 1994, the Company began development of a new winze
into unexplored ground. Costs associated with the development
have been capitalized.
F-9
<PAGE>
OTHER ASSETS
Other assets include payments for lease rights to certain mineral
property which are being amortized over their estimated useful
lives of ten years.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the tax
consequences of temporary differences between the financial
statement and tax basis of existing assets and liabilities. The
principle items causing these temporary differences are net
operating loss carryovers and tax recognition of gold sales.
REVENUE RECOGNITION
As they are mined, gold specimens are recorded in inventory and
revenue is recognized using quoted market prices for gold. Gold
production from ore is recognized when the gold has been milled
from the ore.
EARNINGS PER COMMON SHARE
Earnings per common share are computed on the weighted average
number of common shares outstanding each year after giving effect
to dilutive stock options.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions. These estimates and assumptions
affect the reported amounts of assets and liabilities at the date
of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from these estimates.
NEW FINANCIAL ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board issued
SFAS 123, "Accounting for Stock-Based Compensation", which is
effective for transactions entered into after December 15, 1995.
This Statement establishes a fair value based method of
accounting for stock-based compensation and encourages but does
not require, companies to record compensation cost. However, if
compensation cost is material to the financial statements and not
recorded, pro-forma net income and earnings per share must be
disclosed as if the fair value method had been applied. The
Company has chosen to continue to account for stock-based
compensation under the intrinsic value method prescribed in
F-10
<PAGE>
Accounting Principles Board Opinion No. 25 "Accounting for Stock
Issued to Employees". According, compensation cost for stock
options is measured as the excess, if any, of the quoted market
price of the Company's stock at the date of grant over the
exercise price. Compensation cost related to options granted
during 1996 was determined by management to be immaterial for
disclosure purposes.
2. MINING PROPERTY
The original mining property is carried on the books at its March
1, 1913, value of $379,000 as determined for depletion purposes
in connection with Federal income taxes. This value, together
with the cost of mining properties acquired in 1920 and 1924 for
the aggregated sum of $145,145 has been fully amortized through
depletion charges. During 1994, the Company purchased mining
properties at a cost of $300,000 and capitalized $86,633 in legal
costs. These legal costs were incurred in defense of certain
mining claims. During 1996, the Company purchased properties at
a cost of $76,574.
3. NOTES PAYABLE
Notes payable at December 31, 1996 and 1995 are as follows:
1996 1995
Unsecured notes payable to bank;
interest due monthly at the bank's
prime rate plus 2% (10.25% at
December 31, 1996) $ 263,894 $ 260,921
9.95% secured note payable; secured
by an automobile; monthly
installments of $442 due through
July 27, 2000 15,823 19,354
---------- ---------
279,717 280,275
Less current portion (267,793) (264,452)
---------- ---------
Notes payable due after one year $ 11,924 $ 15,823
========== =========
Under the terms of the unsecured notes payable to bank, the
Company may borrow up to $275,000. Advances under the credit
lines mature on July 1, 1997.
F-11
<PAGE>
Notes payable mature as follows:
Year Ending
December 31, Future Payments
1997 $ 267,793
1998 4,305
1999 4,753
2000 2,866
-----------
$ 279,717
===========
4. STOCK OPTIONS
In 1983 and 1996 the Board of Directors adopted, and the
stockholders ratified, Stock Option Plans for which 530,000
shares of common stock are reserved for issuance to employees and
directors under incentive and nonqualified agreements.
The plans require that the price of all options may not be less
than fair
market value of the stock at the date the option was granted, and
that the stock must be paid for in full at the time the option is
exercised. All options expire on a date determined by the Board
of Directors, but not later than ten years from the date of
grant. Options not currently vested, vest in five years. Shares
granted under the plans are considered to be common stock
equivalents for purposes of calculating earning per share.
A summary of the activity within the plan follows:
1996 1995 1994
----------------- ----------------- ------------------
Weighted Weighted Weighted
Average Average Average
Exercised Exercised Exercised
Shares Price Shares Price Shares Price
-------- --------- -------- --------- -------- --------
Options outstanding,
beginning of year
30,000 $ 1.30 30,000 $ 1.30 30,000 $ 1.30
Options granted
15,000 4.56
-------- --------- -------- --------- --------- ---------
F-12
<PAGE>
1996 1995 1994
----------------- ----------------- ------------------
Weighted Weighted Weighted
Average Average Average
Exercised Exercised Exercised
Shares Price Shares Price Shares Price
-------- --------- -------- --------- -------- --------
Options outstanding,
end of year
45,000 2.39 30,000 1.30 30,000 1.30
======== ========= ======== ========= ========= =========
Options exercisable,
end of year
30,000 1.30 30,000 1.30 25,000 1.30
========= ========= ======== ========= ========= =========
A summary of options outstanding at December 31, 1996 follows:
Range Number of Options Weighted Average Number of Options
of Outstanding Remaining Outstanding
Exercise December 31, Contractual Life December 31,
Prices 1996 1996
- -------- ---------------- ---------------- -----------------
$ 1.30 30,000 5.5 years 30,000
$ 4.56 15,000 9.5 years
---------------- ---------------
45,000 30,000
================ ===============
Two employees exercised stock options in 1993 at a price of $1.30
per share through the issuance of promissory notes totaling
$52,000. These promissory notes bear interest of 7% and are
collateralized by the stock issued. In 1996, the Company
purchased and retired 7,194 shares of stock to satisfy the
outstanding note and accrued interest of $26,000 and $7,300,
respectively, upon the termination of one employee.
5. INCOME TAXES
The income tax (benefit) expense for the years ended December 31,
1996, 1995 and 1994 consisted of the following:
F-13
<PAGE>
Federal State Total
--------- --------- ---------
1996
Current $ (8,000) 2,000 (6,000)
Deferred (212,000) (49,000) (261,000)
---------- ---------- ---------
Income tax (benefit)
expense $(220,000) $ (47,000) $ (267,000)
========== ========== ===========
1995
Current $ 73,000 40,000 113,000
Deferred 91,000 17,000 108,000
---------- ---------- ----------
Income tax expense $ 164,000 $ 57,000 $ 221,000
========== ========== ==========
1994
Current $ 4,000 25,000 29,000
Deferred (44,000) (44,000)
---------- ---------- ----------
Income tax expense
(benefit) $ 4,000 $ (19,000) $ (15,000)
Deferred tax assets (liabilities) are comprised of the following:
1996 1995
Deferred tax assets:
Net operating loss carryovers $ 127,000 $ 134,000
Accounts payable
and other liabilities 61,000 67,000
Alternative minimum tax credit 4,000 118,000
State tax benefit 41,000 75,000
---------- ----------
Total deferred tax assets 233,000 394,000
---------- ----------
Deferred tax liabilities:
Tax basis recognition
of gold revenue (495,000) (965,000)
Book basis of mineral
property & fixed assets (113,000) (57,000)
Accounts receivable & other assets (4,000)
---------- ---------
F-14
<PAGE>
Total deferred tax liabilities (608,000) (1,026,000)
---------- ----------
Net deferred tax liabilities $ (375,000) $ (632,000)
============ ===========
A reconciliation of the income tax expense (benefit) on income
per the U.S. Federal statutory rate to the reported income tax
expense follows:
1996 1995 1994
-------- -------- --------
U.S. Federal statutory rate
applied to pre-tax (loss)
income $ (313,299) $ 324,062 $ 48,509
Depletion deduction (23,317) (83,183) (98,564)
Tax benefit of net
operating loss (23,317) (85,182)
Alternative minimum tax 21,000 73,000 29,000
State income tax (net U.S.
Federal income tax benefit 4,700 26,400 8,757
Other 67,233 (34,097) (2,702)
--------- ---------- --------
Income tax expense
(benefit) $ (267,000) $ 221,000 $(15,000)
========= ========= ========
For Federal income tax purposed, the Company has operating loss
carryforwards totaling $373,000 which may provide future tax
benefits, expiring in 2006.
6. 401(k) PLAN
During 1993, the Company adopted a qualified 401(k) Plan
available to all employees who meet the Plan's eligibility
requirements. This Plan permits participants to make
contributions by salary reduction up to the maximum limits
allowed by Internal Revenue Code Section 401(k).
7. RELATED PARTY TRANSACTIONS
The Company has received operating advances totaling $54,000 from
the President. These advances bear interest at the Citizens Bank
of Nevada County prime rate plus 2%, not to exceed 10%. The rate
was 10% on December 31, 1996.
F-15
<PAGE>
8. FINANCIAL INSTRUMENTS
The Company adopted SFAS 107, "Disclosures About Fair Value of
Financial Instruments", on January 1, 1995. SFAS 107 requires
that the Company disclose estimated fair values for certain
financial instruments. The carrying amounts of financial
instruments including cash, accounts receivable, accounts payable
and accrued compensation, notes payable and notes receivable from
employees approximated fair value as of December 31, 1996 and
1995, because of the relatively shot maturity of these
instruments. The carrying value of inventory is based upon
quoted market prices (Note 1).
F-16
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 31,640
<SECURITIES> 0
<RECEIVABLES> 20,571
<ALLOWANCES> 0
<INVENTORY> 1,138,041
<CURRENT-ASSETS> 25,056
<PP&E> 2,639,507
<DEPRECIATION> 665,583
<TOTAL-ASSETS> 3,217,725
<CURRENT-LIABILITIES> 848,527
<BONDS> 11,924
0
0
<COMMON> 350,407
<OTHER-SE> 2,006,867
<TOTAL-LIABILITY-AND-EQUITY> 3,217,725
<SALES> 1,442,459
<TOTAL-REVENUES> 1,441,457
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,390,205
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,280
<INCOME-PRETAX> (921,468)
<INCOME-TAX> (267,000)
<INCOME-CONTINUING> (654,468)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (654,468)
<EPS-PRIMARY> (.19)
<EPS-DILUTED> 0
</TABLE>
