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, 1997
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 95910
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(530) 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 Exchange
Value $.10 per share
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
registrant: $5,784,330 on March 19, 1997.
<PAGE>
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 levels at various elevations. The
Company's activities are presently focused on the 800 foot level, 1500 foot
level, 1700 foot level, 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 1997, the Company devoted
substantial resources toward mining for gold. In 1996, the Company channeled
substantial resources to the maintenance of the mine and development of
infrastructure; in 1995 and 1994, the Company had also devoted substantial
resources to sinking a new winze and developing new levels 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.
The Company expects to be the first mine in which ground penetrating radar, a
new technology, is commercially deployed beginning in the second quarter. If
the new system works as the tests conducted in the Company's mine last year
suggest, the Company's operating results would be favorably affected.
However, there can be no assurances that the new technology will work as
expected.
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 and timeliness 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 within the Sixteen to One mine there is a substantial
number of attractive exploration opportunities.
In 1994, following a long standing practice of acquiring former productive
mines, the Company purchased the Brown Bear mine in Trinity County,
California. The mine site is 549 timbered and patented acres and has yielded
500,000 ounces of gold to its past owners. The mine is underground yet no
excavation exists below the adit level. During the 1980's the property was
extensively core drilled by Santa Fe Mineral. The Company believes that
within the Brown Bear mine a substantial number of attractive exploration
opportunities exist.
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.
The Company is a California corporation formed October 11, 1911. At December
31, 1997, it had 45 full time employees. The Company's executive office is
located at 527 Miners Street, Alleghany, California 95910. The Company's
phone number is 530-287-3223.
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 34,000 ounces of
gold since January 1992 and (ii) management believes that substantial
additional unrecovered gold exists in the Sixteen to One mine, 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. While there can be no assurance that the
Company will continue to have available the services of an appropriate
underground mining force, mine closures and recent labor reductions of miners
in the Western United States have increased current applications for
employment.
(e) Liquidity
The Company's gold inventory at December 31, 1997 was $632,676 (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. All inventory of raw material is recorded at spot price per ounce. In
addition, contract manufacturing costs of jewelry are included in the finished
jewelry inventory.
(f) Dependence on Key Personnel
The Company has 45 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.
(g) Year 2000
While it appears that the transition of the Year 2000 may have minimal impact
on the Company, it has yet to address all software programs. The company
knows of no significant problems with its suppliers, vendors or customers,
although written confirmation of such has not been received.
(h) 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 or 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.
A more detailed discussion of the foregoing factors is included in this
report.
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 acquired other 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 Exchange under the symbol
OAU.
1997 1996 1995
Price range High Low High Low High Low
1st quarter 3-7/8 3-1/4 4-5/8 3-3/4 3-15/16 3-1/4
2nd quarter 4-1/4 2-7/8 4-3/4 4-5/16 3-3/4 2-5/8
3rd quarter 4 2-7/8 4-9/16 4-1/8 5-1/4 3-1/8
4th quarter 3 1-7/8 4 3-3/4 4-7/8 3-3/4
Holders
As of December 31, 1997, there were 944 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 1997 with 1996
The Company's revenues increased $734,691 (50.93%) from $1,442,459 in 1996 to
$2,177,150 in 1997. Primary reasons for the increase were: (1) Gold
production increased from 3,957.24 ounces in 1996 to 5,869.92 ounces in 1997
(48.33%) and (2) increase in higher margin jewelry, specimen, cabochon and
slab sales. Accordingly, as sales increased, the cost of goods sold
increased; however, the ratio of sales to cost of goods sold for 1997
decreased 7% compared with 1996, primarily because the closing spot price of
gold decreased from $370 per ounce at the end of 1996 to nearly $288 per ounce
at the end of 1997. The Company's compensation and related expenses increased
by $346,706 from the $1,042,861 incurred in 1996. Factors affecting this
increase were the Company's continued expansion of its workforce with the
increased number carried through the entire year. Merit pay increases were
implemented among the miners. Capitalization of work was less in 1997 than
1996. Officers and directors fees remained unchanged.
Contract labor decreased $18,845 (30.59%) as the Company utilized more of its
own work force. The $37,241 (33.98%) decrease in legal, accounting and other
related expenses are primarily attributed to reduced legal issues and the
expanded use of in-house employees, rather than outside firms or individuals.
Depreciation and amortization of development costs increased 122% to $227,534
from $102,645 for year end 1996. The increase in depreciation and
amortization cost is primarily attributed to amortization of development
costs. The Company completed development of a new winze into unexplored
ground in 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 in 1997.
Insurance increased from $189,783 in 1996 to $215,725 in 1997 as medical
insurance costs rose and the cost of worker's compensation insurance
increased. Other expenses increased or decreased only modestly and were not
material.
As a result, the Company's operating results decreased from a loss of $654,468
($0.19 per share).in 1996 to a loss of $319,817 ($0.09 per share)in 1997.
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 through 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).
Balance Sheet Comparisons of 1997 with 1996
The Company's current assets decrease of $398,501 (32.79%) was attributed to
gold being sold from inventory and the impact of the decline in the spot price
of gold from $370 per ounce year-end 1996 to $288 per ounce year-end 1997.
The decline in the price of gold decreased year-end inventories by
approximately $140,000. Proceeds from sales were used for operating expenses.
The increase in accounts receivable-trade from $5,351 in 1996 to $60,872 in
1997 is due to timing of sales and cash receipts at year end.
Mining property decreased $81,965 as development costs associated with
exploration and development are now being amortized over the production from
the newly developed headings. Total assets decreased $549,134 (17.07%).
The Company's current liabilities decreased $263,814 (31.09%). The primary
reduction was deferred income taxes which totaled a decrease of $281,000.
Accounts payable and accrued compensation increased $17,048, while a related
party advance to the Company decreased $31,000. Retained earnings decreased
from $711,663 to $391,846, a decrease of $319,817 (44.94%). Total
stockholders' equity decreased $280,817 (11.91%).
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 short term, intermediate or 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 including specimens, jewelry and 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 which expires on July
1, 1998. There can be no assurance that the line of credit will be renewed or
extended.
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 20, 1998. 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 66 Secretary/Treasurer
& Director 1990 1986
Leland O. Erdahl 69 Director ---- 1992
Sandor Holly 65 Director ---- 1997
Michael M. Miller 55 President
& Director 1983 1977
Richard C. Sorlien 75 Director 1990 1986
Charles I. Brown-Director and Secretary/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 vice president and chief financial officer for AMAX Fold, Inc.
and a director of Canyon Resources Corporation, Uranium Resources, Inc. and
Hecla Mining Company. He is also a trustee for a group of John Hancock
Mutual Funds. 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; M.S. (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 1988, he has served as a
member of the Sierra County Planning Commission (Chairman 1994 and 1995). 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
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 (B.A.) 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. In 1997, the Board of
Directors granted options of 156,000 shares to directors and employees at
$4.00 to $4.73 per share, including $50,000 shares at $4.73 to the president.
Management Remuneration for the Period Ended December 31, 1997.
Name/
Principal Annual
Position Year Salary Bonus Compensation Securities
Michael Miller/ 1997 $105,000 ----- ----- -----
President & CEO 1996 $105,000 $20,000 ----- -----
1995 $ 99,840 ----- ----- -----
Current Management Remuneration
There were no increases or bonuses granted to the president during 1997.
ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Security Ownership of Certain Beneficial Owners, and Management Including
Officers and Directors
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%
Officer and Director
P.O. Box 941
Alleghany, CA 95910
Common Charles I. Brown 171,900 5%
Officer and Director
Family Partnership, LTD
2691 Pinehurst Drive
Evergreen, CO 80439
Common Richard Sorlien 87,250 2.5%
Director
3000 Two Logan Square
18th & Arch Street
Philadelphia, PA 19103
Common Leland O. Erdahl
Director
8046 MacKenzie Court
Las Vegas, NV 89129 30,000 .85%
Common Sandor Holly 8,000 .23%
Director
23801 Ladrillo Street
Woodland Hills, CA 91367
Common All Officers & Directors 641,900 18%
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 and schedules listed in the accompanying index to
financial statements and financial statement schedules are filed as part of
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/Charles I. Brown
Charles I. Brown
Secretary/Treasurer and Director
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 indicated:
/s/ Michael M. Miller
Michael M. Miller
President and Director
/s/ Richard C. Sorlien
Richard C. Sorlien
Director
/s/ Leland O. Erdahl
Leland O. Erdahl
Director
/s/ Sandor Holly
Sandor Holly
Director
<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, 1997 and 1996 F-2
Statement of Operations for each of the three
years in the period ended December 31, 1997 F-4
Statement of Stockholders' Equity for each of
the three years in the period ended
December 31, 1997 F-5
Statements of Cash Flows for each of the three
years in the period ended December 31, 1997 F-6
Notes to financial statements F-8
All 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, 1997 and 1996, and the related statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1997. 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 assurances 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 statements 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, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
Perry-Smith & Company
Certified Public Accountants
Sacramento, California
March 9, 1998
F-1
<PAGE>
ORIGINAL SIXTEEN TO ONE MINE, INC.
BALANCE SHEET
December 31, 1997 and 1996
1997 1996
ASSETS
Current Assets:
Cash $ 64,452 $ 31,640
Accounts receivable - trade 60,872 5,351
Accounts receivable - employees 36,226 21,051
Inventory 632,676 1,138,041
Other current assets 22,581 19,225
--------- ----------
Total Current Assets 816,807 1,215,308
Mining property (Note 2):
Real estate and property rights,
net of depletion of $524,145 182,091 182,091
Mineral property 415,263 415,263
Development costs, net 817,020 898,985
--------- ----------
1,414,374 1,496,339
Fixed assets at cost:
Equipment 859,864 822,620
Buildings 164,546 144,462
Vehicles 188,541 176,086
--------- ----------
1,212,951 1,143,168
Less accumulated depreciation (799,601) (665,583)
--------- ----------
Net fixed assets 413,350 477,585
Other assets, net of accumulated
amortization of $46,760 and
$41,007 in 1997 and 1996,
respectively 24,060 28,493
--------- ---------
Total Assets $2,668,591 $3,217,725
========== ==========
(Continued)
F-2
<PAGE>
ORIGINAL SIXTEEN TO ONE MINE, INC.
BALANCE SHEET
(Continued)
December 31, 1997 and 1996
LIABILITIES & STOCKHOLDERS' EQUITY
1997 1996
Current Liabilities:
Accounts Payable & Accrued
Compensation $ 168,782 $ 151,734
Related Party Advances (Note 7) 23,000 54,000
Note Payable due within one
year (Note 3) 298,931 267,793
Deferred Income Tax (Note 5) 94,000 375,000
--------- ----------
Total Current Liabilities 584,713 848,527
--------- ----------
Notes Payable due after one
year (Note 3) 7,421 11,924
--------- ----------
Total Liabilities 592,134 860,451
--------- ----------
Stockholders' Equity (Note 4):
Common Stock, par value $.10;
10,000,000 shares authorized
in 1997 and 1996; 3,534,065
and 3,504,065 shares issued
and outstanding in 1997 and
1996, respectively 353,407 350,407
Additional paid-in capital 1,357,204 1,321,204
Notes Receivable from employees (26,000) (26,000)
Retained Earnings 391,846 711,663
--------- ----------
Total Stockholders' Equity 2,076,457 2,357,274
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $2,668,591 $3,217,725
========== ==========
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, 1997, 1996 and 1995
1997 1996 1995
Revenues:
Gold and Jewelry Sales $2,177,150 $1,442,459 $2,655,575
---------- ---------- ----------
Operating Expenses:
Salaries and Wages 1,389,567 1,042,861 804,368
Depreciation & Amortization 227,534 102,645 123,285
Contract Labor 42,768 61,613 75,791
Telephone & Utilities 117,374 114,385 110,415
Taxes: Property & Payroll 160,778 164,933 117,214
Insurance 215,725 189,783 125,052
Supplies 302,374 342,027 250,163
Small Equipment & Repairs 52,338 68,537 72,735
Drayage 72,140 63,390 45,376
Promotion 21,632 49,867 23,525
Office Expenses 10,746 7,564 13,341
Legal & Accounting 72,359 109,600 57,554
Other Expenses 69,525 73,000 64,762
--------- --------- ---------
Total Operating Expenses 2,754,860 2,390,205 1,883,581
(Loss) Income
from Operations (577,710) (947,746) 771,994
Other (Expense) Income, net (23,107) 26,278 181,130
--------- --------- ---------
(Loss) Income before
Income Taxes (600,817) (921,468) 953,124
Income Tax Benefit
(expense),(Note 5) 281,000 267,000 (221,000)
--------- --------- ---------
Net (loss) Income $(319,817) $(654,468) $ 732,124
========== ========== ==========
Basic & Diluted (Loss)
Earnings per Share of
Common Stock $ (.09) $ (.19) $ .21
========== ========== ==========
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, 1997, 1996 and 1995
<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, 1995 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, $.05 per share (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
Issuance of stock
under stock option
plan (Note 9) 30,000 3,000 36,000 39,000
Net loss (319,817) (319,817)
--------- ----------- ------------ ------------- ------------ -----------
Balance, December 31, 1997 3,534,065 $ 353,407 $ 1,357,204 $ (26,000) $ 391,846 $ 2,076,457
========= ========== =========== =========== ============ ===========
<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, 1997, 1996 and 1995
1997 1996 1995
Cash flows from operating
activities:
Net (loss) income $ (319,817) $ (654,468) $ 732,124
Adjustment to reconcile
net (loss) income to
net cash provided by
operating activities:
Depreciation and
amortization 227,534 102,645 123,285
(Increase) decrease in
accounts receivable (70,696) (7,201) 3,690
Decrease (increase) in
inventory 505,365 1,090,151 (460,620)
(Increase) decrease in
other current assets (3,356) (15,504) 18,231
Increase (decrease) in
accounts payable &
accrued compensation 17,048 95,696 (9,444)
(Decrease) increase in
income taxes payable (80,000) 55,800
(Decrease) increase in
deferred income taxes (281,000) (261,000) 108,000
Gain on sale of asset (5,797)
---------- --------- --------
Net cash provided
by operating
activities 69,281 270,319 571,066
---------- -------- ---------
Cash flows from investing
activities:
Purchase of fixed assets
and mining property (98,768) (264,778) (189,002)
Disposition of fixed assets 27,664
Capitalization of
development costs (184,948) (347,848)
--------- -------- --------
Net cash used
in investing
activities (71,104) (449,726) (536,850)
--------- -------- --------
(Continued)
F-6
<PAGE>
ORIGINAL SIXTEEN TO ONE MINE, INC.
STATEMENT OF CASH FLOWS
(Continued)
For the Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
Cash flows from financing
activities:
Increase in related
party advances $ (31,000) $ 54,000
Common stock repurchased (23,013) $ ( 55,186)
Repayment of notes payable (4,381) (3,531) (51,371)
Issuance of notes payable 31,016 2,973 281,646
Dividends paid (175,400)
Proceeds from exercised
stock options 39,000
--------- ---------- ---------
Net cash used
in financing
activities 34,635 30,429 (311)
--------- --------- --------
(Increase) decrease
in cash 32,812 (148,978) 33,905
Cash at beginning of year 31,640 180,618 146,713
--------- --------- ---------
Cash at end of year $ 64,452 $ 31,640 $ 180,618
========= ========= =========
Supplemental schedule of
cash payments:
Cash paid during the
year for:
Interest expense $ 25,965 $ 25,190 $ 29,493
Income taxes $ 6,085 $ 90,900 $ 57,200
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
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-7
<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. In addition, contract
manufacturing costs of jewelry are included in the finished jewelry
inventory. 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. Development was complete at December 31, 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. Amortization expense for the year ended December 31, 1997
totaled $81,965.
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. Changes
in quoted market prices subsequent to mining are charged or credited to
income for gold remaining in the Company's inventory at the date of the
price change. Jewelry and gold specimen sales prices may include a
premium over the quoted market price of gold. Such premiums are
recognized at the date of sale.
Earnings per Share
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share", which established new standards
for computing and presenting earnings per share (EPS). This Statement
was adopted by the Company for financial statements issued for the year
ended December 31, 1997 and requires the restatement of all prior-period
EPS data presented.
Basic EPS, which excludes dilution, is computed by dividing income
available to common stockholders by the weighted-average number of
common shares outstanding for the period and replaces the presentation
of primary EPS. Diluted EPS reflects the potential dilution that could
occur if securities or other contracts to issue common stock, such as
stock options, result in the issuance of common stock which shares in
the earnings of the Company. Diluted EPS is computed similarly to, and
replaces the presentation of, fully diluted EPS. The treasury stock
method has been applied to determine the dilutive effect of stock
options in computing diluted EPS.
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.
Stock-Based Compensation
Stock options are accounted for under the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees". Accordingly, 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.
Reclassifications
Certain reclassifications have been made to prior years' balances to
conform to classifications used in 1997.
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, 1997 and 1996 are as follows:
1997 1996
Notes payable to bank; secured by
accounts receivable and inventory;
interest due monthly at the bank's
prime rate plus 2% (10.5% at
December 31, 1997) $ 275,000 $ 263,894
Note payable to bank; secured by
accounts receivable and inventory;
interest due monthly at the bank's
prime rate plus 2% (11% at
December 31, 1997) 20,000
9.95% secured note payable; secured
by an automobile; monthly
installments of $442 due through
July 27, 2000 11,352 15,823
---------- ---------
306,352 279,717
Less current portion (298,931) (267,793)
---------- ---------
Notes payable due after one year $ 7,421 $ 11,924
========== =========
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, 1998.
Notes payable mature as follows:
Year Ending
December 31, Future Payments
1998 298,931
1999 5,127
2000 2,294
-----------
$ 306,352
===========
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
vest over five years. Shares granted under the plans are considered to
be common stock equivalents for purposes of calculating earnings per
share (Note 9).
A summary of the activity within the plan follows:
1997 1996 1995
----------------- ----------------- ------------------
Weighted Weighted Weighted
Average Average Average
Exercised Exercised Exercised
Shares Price Shares Price Shares Price
-------- --------- -------- --------- -------- --------
Options outstanding,
beginning of year
45,000 $ 2.39 30,000 $ 1.30 30,000 $ 1.30
Options exercised
(30,000) $ 1.30
Options granted
156,000 4.40 15,000 $ 4.56
-------- -------- ---------
Options outstanding,
end of year
171,000 4.42 45,000 2.39 30,000 1.30
======== ======== =========
Options exercisable,
end of year
3,000 4.56 30,000 1.30 30,000 1.30
========= ======== ========
A summary of options outstanding at December 31, 1997 follows:
Range Number of Options Weighted Average Number of Options
of Outstanding Remaining Outstanding
Exercise December 31, Contractual Life December 31,
Prices 1997 1997
- -------- ---------------- ---------------- -----------------
$4.00 20,000 9.5 years
$4.31 86,000 9.5 years
$4.56 15,000 8.5 years 3,000
$4.73 50,000 9.5 years
---------------- ---------------
171,000 3,000
================ ===============
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, 1997,
1996 and 1995 consisted of the following:
Federal State Total
--------- --------- ---------
1997
Current $ 1,000 $ 1,000
Deferred $(202,000) (80,000) (282,000)
--------- --------- ---------
Income tax benefit $(202,000) $ (79,000) $(281,000)
========= ========= =========
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
========== ========== ==========
Deferred tax assets (liabilities) are comprised of the following:
1997 1996
Deferred tax assets:
Net operating loss carryovers $ 149,000 $ 127,000
Accounts payable
and other liabilities 57,000 61,000
Alternative minimum tax credit 33,000 4,000
State tax benefit 56,000 41,000
---------- ----------
Total deferred tax assets 295,000 233,000
---------- ----------
Deferred tax liabilities:
Tax basis recognition
of gold revenue (271,000) (495,000)
Book basis of mineral
property & fixed assets (118,000) (113,000)
Accounts receivable & other assets
---------- ---------
Total deferred tax liabilities (389,000) (608,000)
---------- ----------
Net deferred tax liabilities $ (94,000) $ (375,000)
============ ===========
A reconciliation of the income tax expense (benefit) on income per the
U.S. Federal statutory rate to the reported income tax expense follows:
1997 1996 1995
-------- -------- --------
U.S. Federal statutory rate
applied to pre-tax (loss)
income $ (204,278) $ (313,299) $ 324,062
Depletion deduction (23,317) (83,183)
Tax benefit of net
operating loss (44,997) (18,617) (58,782)
Alternative minimum tax 21,000 73,000
Other (31,725) 67,233 (34,097)
--------- ---------- --------
Income tax (benefit)
expense $ (281,000) $ (267,000) $ 221,000
========= ========= ========
For Federal income tax purposes, the Company has operating loss
carryforwards totaling approximately $438,000 and $118,000
respectively, which may provide future tax benefits, expiring in 2007.
6. 401(k) PLAN
The Company's qualified 401(k) Plan is 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 $23,000 and $54,000
at December 3, 1997 and 1996, respectively, 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, 1997 and
1996.
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, 1997 and 1996, because of the relatively short maturity of these
instruments. The carrying value of inventory is based upon quoted
market prices (Note 1).
9. EARNINGS PER SHARE
A reconciliation of the numerators and denominators of the basic and
diluted (loss) earnings per share computations is as follows:
Weighted
Average
Number of
Net (Loss) Shares Per Share
For the Year Ended Income Outstanding Amount
- --------------------------- ----------- ----------- -----------
December 31, 1997
Basic and dilutive
loss per share $ (319,817) 3,519,066 $ (.09)
========== ========= ========
December 31, 1996
Basic and dilutive
loss per share $ (654,468) 3,507,730 $ (.19)
========== ========= ========
December 31, 1995
Basic earnings per share $ 732,124 3,508,291 $ .21
========
Effect of dilutive stock
options outstanding 18,857
---------- ---------
Dilutive earnings per share $ 732,124 3,527,148 $ .21
========== ========= ========
For the years ended December 31, 1997 and 1996, conversion of
outstanding stock options was not assumed because assumed conversion
would have an anti-dilutive effect on earnings per share.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 64,452
<SECURITIES> 0
<RECEIVABLES> 97,098
<ALLOWANCES> 0
<INVENTORY> 632,676
<CURRENT-ASSETS> 22,581
<PP&E> 2,627,325
<DEPRECIATION> 799,601
<TOTAL-ASSETS> 2,668,591
<CURRENT-LIABILITIES> 584,713
<BONDS> 7,421
0
0
<COMMON> 353,407
<OTHER-SE> 1,723,050
<TOTAL-LIABILITY-AND-EQUITY> 2,668,591
<SALES> 2,177,150
<TOTAL-REVENUES> 2,177,150
<CGS> 2,754,860
<TOTAL-COSTS> 2,754,860
<OTHER-EXPENSES> 23,107
<LOSS-PROVISION> 0
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</TABLE>
