SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1998 Commission File No. 001-10156
ORIGINAL SIXTEEN TO ONE MINE, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-0735390
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporated or organization
Post Office Box 1621, Alleghany, CA 95910
(Address of principal executive offices)
(530) 287-3223
(Registrant's telephone number)
(including area code)
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 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
requirement for the past 90 days.
Yes: X No:
As of June 30, 1998, 3,534,065 shares of Common Stock, par value $.10 per
share, were issued and outstanding.
<PAGE>
PART I: FINANCIAL INFORMATION
Original Sixteen to One Mine, Inc.
Statement of Operations and Retained Earnings
For the Three Months and Six Months Ended June 30, 1998 and 1997
Three Months Ended Six Months Ended
6/30/98 6/30/97 6/30/98 6/30/97
------- ------- ------- -------
Revenues:
Refined gold specimen &
jewelry sales $ 294,562 $1,015,187 $ 656,997 $1,460,417
Operating expenses:
Salaries and wages 381,551 351,188 807,794 768,407
Depreciation & amortization 38,040 23,758 62,790 59,395
Amortization of
development costs 8,150 36,800 19,142 35,800
Contract labor 1,971 4,650 4,732 12,893
Telephone & utilities 36,009 29,882 68,189 58,897
Taxes - property & payroll 11,576 13,557 24,437 25,758
Insurance 23,533 11,401 36,300 24,267
Supplies 44,448 75,703 98,547 139,238
Drayage 12,652 13,785 28,723 31,214
Promotion 1,873 13,733 3,243 15,516
Office expenses 5,877 10,227 8,667 18,488
Legal and accounting 22,095 21,977 41,597 53,403
Other expenses 18,709 29,726 38,958 33,774
----------- ---------- ---------- ----------
Total operating expenses 606,484 635,387 1,243,119 1,277,050
----------- ---------- ---------- ----------
Income (loss)
from operations (311,922) 379,800 (586,122) 183,367
Other Income & (Expense):
Other Income 14,990 5,925 38,070 13,629
Other Expenses (25,488) (48,122) (26,870) (69,480)
----------- ---------- ---------- ----------
Total Other Income
(Expense) (10,498) (42,197) 11,200 (55,581)
----------- ---------- ---------- ----------
Income (loss) before taxes (322,420 337,603 (574,922) 127,516
Provision for income taxes (1,671) - (2,171) (1,000)
----------- ---------- ---------- ----------
Net income (loss) (324,091) 337,802 (577,093) $ 126,516
=========== ========== ==========
Retained earnings (12/31/97) 391,846
----------
Retained earnings (06/30/98) $ (185,247)
==========
Gain (loss) per share
of common stock ($0.09) $0.10 ($0.16) $0.04
----------- ---------- ---------- ----------
See Accompanying Notes
<PAGE>
PART I: FINANCIAL INFORMATION
Original Sixteen to One Mine, Inc.
Condensed Balance Sheet
June 30, 1998 and December 31, 1997
ASSETS
June 30, 1998 December 31, 1997
------------- -----------------
Current Assets
Cash $ 28,813 $ 64,452
Accounts receivable 52,033 97,098
Inventory 541,746 632,676
Other current assets 15,686 22,581
----------- -----------
Total current assets 638,278 816,807
----------- -----------
Mining Property
Real estate and property rights
net of depletion of $524,145 182,091 182,091
Mineral Property 415,263 415,263
Development costs, net amortization
of $101,107 and $81,965 in 1998 and
1997, respectively 797,878 817,020
----------- -----------
1,395,232 1,414,374
----------- -----------
Fixed Assets at Cost
Equipment 859,864 859,864
Building and Mill 170,421 164,546
Vehicles 188,541 188,541
----------- -----------
1,218,826 1,212,951
Less accumulated depreciation (859,988) (799,601)
----------- -----------
Net fixed assets 358,838 413,350
----------- -----------
Other assets, net of accumulated
amortization of $48,198 and
$46,760 in 1998 and 1997, respectively 21,657 24,060
----------- -----------
Total Assets $ 2,414,005 $ 2,668,591
=========== ===========
See Accompanying Notes
<PAGE>
PART I: FINANCIAL INFORMATION
Original Sixteen to One Mine, Inc.
Condensed Balance Sheet
June 30, 1998 and December 31, 1997
LIABILITIES & STOCKHOLDERS' EQUITY
June 30, 1998 December 31, 1997
--------------- -----------------
Current Liabilities
Accounts payable and
accrued compensation $ 204,397 $ 168,782
Related party advances 304,000 23,000
Notes payable due within one year 299,413 298,931
Accrued expenses 7,680 -
Deferred income taxes 94,000 94,000
----------- -----------
Total Current Liabilities 909,490 584,713
----------- -----------
Noted payable due after one year 5,151 7,421
----------- -----------
Total Liabilities 914,641 592,134
Stockholders' Equity
Capital Stock, par value $.10 -
10,000,000 shares authorized:
3,534,065 and 3,534,065 shares issued
and outstanding as of June 30, 1998
and December 31, 1997, respectively 353,407 353,407
Additional paid-in capital 1,357,204 1,357,204
Notes receivable from employees (26,000) (26,000)
Retained earnings (185,247) 391,846
----------- -----------
Total Stockholders' Equity 1,499,364 2,076,457
----------- -----------
Total Liabilities and
Stockholders' Equity $ 2,414,005 $ 2,668,591
=========== ===========
See Accompanying Notes
<PAGE>
PART I: FINANCIAL INFORMATION
Original Sixteen to One Mine, Inc.
Statement of Cash Flows
Six Months Ended
June 30, 1998 June 30, 1997
-------------- --------------
Cash Flows From Operating Activities:
Net loss $ (577,093) $ 126,516
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation and amortization 81,932 89,398
(Increase) decrease in accounts
receivable 45,065 (49,352)
Decrease in inventory 90,930 96,509
Decrease in other current assets 6,895 2,469
Increase in accounts payable
and accrued compensation 35,615 14,075
Increase in accrued expenses 7,680 7,657
------------ ------------
Net cash provided (used) by
operating activities (308,976) 287,272
------------ ------------
Cash Flows From Investing Activities:
Proceeds from sale of fixed assets - 28,987
Purchase of fixed assets (5,875) (53,075)
------------ ----------
Net cash provided by
investing activities (5,875) (24,088)
------------ -----------
Cash Flows From Financing Activities:
Payments made on notes payable (2,270) (261,956)
Payments made to employees for advances
made to the Company - (33,027)
Proceeds from additional borrowings 281,482 15,698
Proceeds from sale of common stock - 39,000
------------ ----------
Net cash provided (used) by
financing activities 279,212 (240,285)
------------ ----------
Increase (Decrease) in Cash (35,639) 22,899
Cash, beginning of year 64,452 31,640
------------ -----------
Cash, end of period $ 28,813 $ 54,639
============= ===========
Supplemental schedule of other cash flows:
Cash paid during the period for:
Interest expense $ 8,886 $ 15,424
============ ===========
Income Expense $ - $ 1,300
============ ===========
See Accompanying Notes
<PAGE>
PART I: FINANCIAL INFORMATION
Original Sixteen to One Mine, Inc.
Notes to Financial Statements
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Original Sixteen to One Mine, Inc., owns and operates mining claims in Sierra
and Trinity Counties located in Northern California.
REVENUE
Revenue primarily consists of gold and silver mined during the reporting
period without regard to what was sold or held in inventory. They are
recorded at the spot price per ounce on the statement date. Revenue does not
include unprocessed high-grade ore mined during the reporting period. Jewelry
and gold specimen sales may include a premium over the quoted market price of
gold. Such premiums are recognized at the date of sale.
INVENTORY
Inventory consists of gold and silver bullion, dore, specimens and jewelry.
Inventory is recorded at the spot price per ounce on the balance sheet date.
FIXED ASSETS
Fixed assets are stated at historical cost. Depreciation is being 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
The Company has established a depletion policy for its mineral and mining
properties. Because of the geological formation in the Alleghany Mining
District, estimates of ore reserves cannot be calculated; therefore, a cost
per unit depletion factor cannot be determined. Management has determined
that a straight-line method of depletion over a 25 year period would most
accurately match the estimated production of the mining properties (see Note
2). If estimates of ore reserves become available, the units of production
method of depletion will be used.
DEVELOPMENT
In February 1994, the Company began development of the 2483 winze into
unexplored ground. Costs associated with the development have been
capitalized. Development was complete at December 1996. Based upon previous
mine experience, management estimates that gold production from the new winze
will approximate 50,000 ounces. Accordingly, capitalized development costs
are being amortized using the units of production method.
INCOME TAXES
Differences exist between the amount of income or loss reported for financial
statements and income tax reporting purposes. These differences are
attributable to the use of the cash basis reporting of ore revenues and
accelerated depreciation and depletion methods for income tax purposes. No
provision for income taxes, with the exception of state minimum income tax,
has been made in the current year due to the uncertainty of revenues for the
remainder of the year.
NET INCOME OR LOSS PER SHARE
Net gain or loss per share has been computed using the common shares
outstanding at end of reporting period. The Company's stock equivalents have
been excluded from the calculation of shares outstanding.
NOTE 2 - MINING PROPERTY
The Company's 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 incurred in defense of certain mining claims.
NOTE 3 - INCOME TAXES
For Federal income tax purposes, the Company has operating loss carryforwards
which may provide future tax benefits, expiring as follows:
Year of Expiration
2006 $345,753
2007 48,562
--------
$394,315
For California State income taxes, the Company has no operating loss
carryforwards.
NOTE 4 - NOTES PAYABLE
The Company has a note payable to the bank amounting to $9,564, bearing
interest at 9.95% and secured by a vehicle. The note is payable in 60 monthly
installment of $442.
At June 30, 1998, the Company has two fully extended revolving lines of credit
with a bank in the amount of $275,000. The Company and bank are presently
renewing the amounts and methods of repayment of the lines of credit.
PART II: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATION
STATEMENT OF INCOME AND RETAINED EARNINGS
Second Quarter Comparisons:
The Company's revenues decreased $720,624 (70.98%) the second quarter of 1998
compared with the same period of 1997. The combined gold production of the
mine and the mill decreased 2,128 troy ounces in this quarter's comparisons
with 1997. Lack of discovery of any significant pockets of gold contributed to
the decrease over the 1997 comparisons. The mill did not operate the majority
of the second month and into the third month of the second quarter due to a
broken shaft that had to be replaced. Milling resumed in July, 1998.
Gold production is measured in fine troy ounces. During the first six months
of 1998, production from the mine totaled 1,773.19 troy ounces as follows:
MINE MILL TROMMEL* TOTAL
------ ------ ------- -----
January 402.98 201.52 0.00 604.50
February 60.54 46.79 0.00 107.33
March 36.68 302.06 0.00 338.74
------ ------ ------ ------
Total:
First Qtr 500.20 550.37 0.00 1,050.57
====== ====== ====== ========
April 97.59 31.81 0.00 129.40
May 221.36 7.63 0.00 228.99
June 334.73 29.50 0.00 364.23
------ ------ ------ ------
Total:
Second Qtr. 653.68 68.94 0.00 722.62
====== ====== ====== ======
The Company continues to identify mine production into three categories: Mine
mill and trommel. During the first six months of 1997, production totaled
3,661.46 troy ounces as follows:
MINE MILL TROMMEL* TOTAL
------ ------ ------- -----
January 46.44 93.12 0.00 139.56
February 40.41 205.73 149.13 395.27
March 163.75 133.93 48.60 346.28
------ ------ ------ ------
Total:
First Qtr 250.60 432.78 197.73 881.11
====== ====== ====== ======
April 374.68 155.19 17.64 547.51
May 1,105.01 100.09 36.41 1,241.51
June 1,061,33 0.00 0.00 1,061.33
-------- ------- ------- --------
Total:
Second Qtr. 2,541.02 255.28 54.05 2,850.35
======== ======= ======= ========
* Note: A trommel is a perforated cylinder used to screen ore. As production
from the mine increased in May 1997, the trommel operation was suspended.
Total operating expenses for he three months ended June 30, 1998 compared with
June 30, 1997 decreased $28,903 (04.54%). Significant areas of change are as
follows:
The Company's compensation expenses increased $30,363 (08.65%) the second
three months of 1998 compared with the same period in 1997. This reflects
merit pay increases among the miners as well as increased insurance costs.
Contract labor decreased $2,679 (57.61%) compared with the same period in
1997.. The Company utilized more of its own work force during the three
months ended June 30, 1998. Insurance expense increased $12,132 (106.42%)
during the second quarter of 1998 versus the same period of 1997.
Telephone and utilities increased $6,127 (20.51%) for the three month period
ending June 30, 1998, compared with the same period of 1997. Increased power
was required in the de-watering and start-up operation of the Rainbow mine.
The Company also put an additional electric compressor on line, which
increased energy consumption.
Depreciation and amortization of fixed assets increased $14,282 while
amortization of development costs decreased $28,650 in the second quarter of
1998 versus the second quarter of 1997 as costs associated with exploration
and development have been reclassified for 1998 as amortization of development
costs.
The Company continues to conserve working capital on discretionary expenses,
thereby reflecting a decrease in Supplies of $31,255 (41.28%), Office expense
of $4,350 (42.53%), Promotion expense of $11,860 (86.36%) and expenses
classified as Other expenses in the amount of $11,017 (37.06%).
Six Month Comparisons:
Revenues decreased $803,420 (55.01%) for the six months ended June 30, 1998
compared with the same period of 1997. The Company recorded 3,661.46 fine troy
ounces sold in 1997 and 1,773.19 fine troy ounces sold in 1998. The
difference is 1,888.27 fine troy ounces. The average price per ounce received
in 1997 was $398.86. The average price received 1998 was $370.51.
Wages increased $39,398 (05.13%) for the first six months of 1998 compared
with the same period of 1997. Increases in the first and second quarters of
1998 have begun to be off-set by a reduction in the work force.
Depreciation and amortization of fixed assets increased $3,395 (05.74%) while
amortization of development costs decreased $16,658 (46.53%) following the
trends of the first quarter comparisons.
Contract labor decreased $8,161 (63.29%) for the period ending June 30, 1998,
compared with the same period for 1997 as the Company utilized more of its own
work force. The $11,806 (22.10%) decrease in legal and accounting expenses for
the six months ended June 30, 1998, compared with the same period in 1997, is
primarily attributed to the use of in-house employees rather than an outside
accounting firm. Insurance expense increased $12,033 (49.59%) during the six
month period ending June 30 of 1998 versus the same period of 1997.
Telephone and utilities increased $9,292 (15.78%) for the first six months of
1998 compared with 1997 which remains consistent with the comparisons for the
second quarter.
The Company continues to conserve working capital on discretionary expenses,
thereby reflecting a decrease in Supplies of $40,691 (29.22%), Office expense
of $9,821 (53.12%), and Promotion expense of $12,273 (79.09%) for the six
month period ending June 30, 1998, compared with the same period of 1997.
Other expenses increased or decreased only modestly and were not material.
BALANCE SHEET
Assets:
Fine troy ounces of gold in inventory decreased $90,930 (14.31%) from
December 31, 1997, to June 30, 1998. Previously mined gold in quartz was
processed and sold for cash. The spot price for gold increased from $288.40
on December 31, 1997, to $296.30 on June 30, 1998. Accounts receivable
decreased $45,065 (46.41%) as year end purchasers of gold paid down their
debts.
Liabilities:
Total current liabilities increased $322,507 (54.47%) from December 31, 1997,
to June 30, 1998, as the Company chose to borrow money to satisfy its cash
flow rather than liquidate inventory and slowed its payments to suppliers.
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 mined and sales of gold
from inventory to meets 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 of equity financing on the most reasonable terms available or
may terminate its operation.
To alleviate the continuing drain on cash, the Company during the second
quarter sold approximately $300,000 of one year notes due May 1, 1999, which
bear interest of 10% per annum and are convertible into unregistered shares of
its common stock at $1.75 per share. The terms of the transaction were
negotiated with a significant shareholder, who is not a Director, in an arms
length transaction. Following his commitment to purchase $100,000 of such
notes, other purchases were made by some, but not all of the Directors. All
purchasers are accredited investors. Terms were agreed to in a conference
call during May 1998. The Directors ratified the $300,000 of outstanding
notes and unaimously approved the following resolution:
BE IT RESOLVED, that the Company is authorized to sell up to $500,000 of notes
due May 1, 1999, bearing interest at 10% per annum from date of issuance and
convertible into unregistered shares of the Company's common stock at $1.75
per share. The notes may be sold only to accredited investors in a
transaction exempt from registration.
As of August 12, 1998, no additional notes have been issued to accredited
investors.
SUBSEQUENT EVENTS
The general environment for gold mining companies remains poor due to low spot
prices and a lack of interest with speculators or traders. While the price of
gold and the costs of mining influence the Company's financial success,
locating concentrations or pockets of gold is the Company's most serious
challenge.
Modest amounts of gold were found in July in an unexplored and untested area
of the mine, referred to as the 1500 footwall drift. The area is noteworthy
due to the size and mineral character of the vein and the hundreds of feet of
virgin quartz above and below the discovery.
During 1997, a total of 225,400 shares of stock were traded on the Pacific
Exchange. In July, 1998, shares traded totaled 158,200. On July 15, a sale
of 69,200 shares triggered a drop in price from $1.81 per share to $1.00 per
share. On July 28, 1998, the stock closed at $2.00. The Company is not aware
of any internal circumstances contributing to the seller's desire to liquidate
the position.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
From time to time the Original Sixteen to One Mine, Inc. (the Company), will
make written and oral forward-looking statements about matters that involve
risks and uncertainties that could cause actual results to differ materially
from projected results. Important factors that could cause actual results to
differ materially include, among others:
- Fluctuations in the market prices of gold
- General domestic and international economic and political
conditions
- Unexpected geological conditions or rock stability conditions
resulting in cave-ins, flooding, rock-bursts or rock slides
- Difficulties associated with managing complex operations in remote
areas
- Unanticipated milling and other processing problems
- The speculative nature of mineral exploration
- Environmental risks
- Changes in laws and government regulations, including those
relating to taxes and the environment
- The availability and timing of receipt of necessary governmental
permits and approval relating to operations, expansion of
operations, and financing of operations
- Fluctuations in interest rates and other adverse financial market
conditions
- Other unanticipated difficulties in obtaining necessary financing
- The failure of equipment of processes to operate in accordance
with specifications or expectations
- Labor relations
- Accidents
- Unusual weather or operating conditions
- Force majeure events
- Other risk factors described from time to time in the Original
Sixteen to One Mine, Inc., filings with the Securities and
Exchange Commission
Many of these factors are beyond the Company's ability to control or predict.
Investors are cautioned not to place undue reliance on forward-looking
statements. The Company disclaims any intent or obligation to update its
forward-looking statements, whether as a result of receiving new information,
the occurrence of future events or otherwise.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ORIGINAL SIXTEEN TO ONE MINE, INC.
(Registrant)
/s/Michael M. Miller
President and Director
Dated: August 12, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 28,813
<SECURITIES> 0
<RECEIVABLES> 52,033
<ALLOWANCES> 0
<INVENTORY> 541,746
<CURRENT-ASSETS> 15,686
<PP&E> 2,614,058
<DEPRECIATION> 859,988
<TOTAL-ASSETS> 2,414,005
<CURRENT-LIABILITIES> 909,490
<BONDS> 5,151
0
0
<COMMON> 353,407
<OTHER-SE> 1,145,957
<TOTAL-LIABILITY-AND-EQUITY> 2,414,005
<SALES> 687,870
<TOTAL-REVENUES> 687,870
<CGS> 30,873
<TOTAL-COSTS> 30,873
<OTHER-EXPENSES> 1,243,119
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,725
<INCOME-PRETAX> (574,922)
<INCOME-TAX> (2,171)
<INCOME-CONTINUING> (577,093)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (577,093)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
