FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXHANGE ACT OF 1934 (NO FEE REQUIRED)
For the fiscal year ended: DECEMBER 31, 1998
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
Title of each class on which registered
Common stock, par 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: $1,906,565 on December 31, 1998.
<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 1,103,500 troy 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 elevation. The Company's activities are presently focused on
the 800 foot level, 1500 foot level, 1700 foot level and 2400 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 1998 and
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 advanced metal
detection, a new technology, is commercially deployed during 1999. If the
new system works as the tests conducted in the Company's mine during 1998
and 1997 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. 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 540 timbered and patented acres and has
yielded 500,000 troy 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. When funding is available for
exploration and development, the Company will pursue the potential within
this property.
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 or for the succeeding fiscal year.
The Company is a California corporation formed October 11, 1911. At
December 31, 1998, it had 35 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. The internet address is
www.origsix.com.
Risk Factors
(a) Price of Gold
The price of gold has been flat (with a few periodic exceptions) over the
past year, probably reflecting diminished inflationary expectations and
activities of the international banking institutions. 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 or jewelry sales.
(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 37,500
troy 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 know 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, 1998 was $414,246 (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 troy ounce. In addition, contract
manufacturing costs of jewelry are included in the finished jewelry
inventory.
(f) Dependence on Key Personnel
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
The Year 2000 (Y2K) problem arises as a result of the way most computer
and process control systems handle dates. Most systems only store the
last two digits of the year. This equipment will not be able to
differentiate between years at the turn of the century and, if the problem
is left uncorrected, may result in malfunctions of the equipment.
The use of computers is limited to Windows operating systems on personal
computers linked to an internal network throughout the Company. Software
consists of standardized packages from major developers. The greatest
internal impact is anticipated with the Company's accounting software.
The Y2K issue also relates to other office equipment, such as telephone,
voice mail and the security system. The Company is in the process of
contacting all affected vendors and manufacturers to determine where any
updates of replacements will be required. The cost of the project to date
has not been material and the Company does not expect future costs of the
project to be material. An entire system replacement and software
programs would total approximately $10,000. Companies providing banking,
insurance and other administrative services to the Company are being
contacted for Year 2000 compliance.
(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 has acquired
additional mining properties for $405,517, 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 24 patented claims (412
acres. An additional 53 claims are subject to subsurface access but with
paramount title held by the Bureau of Land Management of the Department of
the Interior). 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 (440 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
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.
1998 1997 1996
Price range High Low High Low High Low
1st quarter 2-3/1 1-5/8 3-7/8 3-1/4 4-5/8 3-3/4
2nd quarter 2-1/8 1-9/16 4-1/4 2-7/8 4-3/4 4-5/16
3rd quarter 2-1/16 7/8 4 2-7/8 4-9/16 4-1/8
4th quarter 1-1/4 7/8 3 1-7/8 4 3-3/4
Shareholders
As of December 31, 1998, there were 1,051 holders of common stock.
ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION
Balance Sheet Comparisons of 1998 with 1997
The Company's current assets decrease of $312,633 (38.28%) was attributed
to gold being sold from inventory due to the lack of a significant
discover of gold, to maintain day to day operations. Mining property
decreased $17,876 as development costs associated with exploration and
development are being amortized over the production from the newly
developed headings. Total assets decreased $441,373 (16.54%).
The Company's current liabilities increased $213,120 (36.45%). The
primary increase is due to related party advances to the Company (see
subsequent events).
Statement of Operations
(a) Comparison of 1998 with 1997
The Company's revenues decreased $710,448 (32.63%) from $2,177,150 in 1997
to $1,466,702 in 1998. The primary reason for the decrease was a decline
in gold production from 5,869.92 troy ounces in 1997 to 3,737.39 troy
ounces in 1998. Gross profit from jewelry, slab and specimen sales
increased $17,891 (4.96%) from $360,910 in 1997 to $378,801 in 1998. The
Company's total operating expense decreased $511,801 (18.58%) from
$2,754,860 in 1997 to $2,243,059 in 1998. The Company's compensation and
related expenses decreased $153,843 (11.08%) from the $1,389,567 incurred
in 1997. The workforce was reduced from 45 at year end 1997 to 35 at year
end 1998. The reduction in workforce coupled with a reduction in the
modification factor for worker's compensation insurance attributed in part
to a 20.58% reduction in insurance expense from $215,725 to $171,319 in
1998. Contract Labor decreased $15,200 (35.54%) as the Company utilized
more of its own work force. The $10,353 (14.31%) decrease in legal,
accounting and other related expenses is primarily due to the expanded use
of in-house employees rather than outside firms or individuals.
Depreciation and amortization of development costs decreased $90,627
(39.83%) from December 31, 1997, to $ 136,907 for the year ended 1998.
The decrease in depreciation and amortization cost is primarily attributed
to lower gold production. Based upon previous mine experience, management
established that gold production from the new winze will approximate
50,000 troy ounces of gold. Accordingly, capitalized development costs
are being amortized using the units of production method.
The Company continues to conserve working capital on discretionary
expenses, thereby reflecting a decrease in supplies of $139,473 (46.13%),
drayage of $12,383 (17.17%) and promotion of $14,647 (67.71%). Other
expenses increased or decreased only modestly and were not material.
As a result, the Company's operating losses increased from $319,817 ($.09
per share) in 1997 to $666,909 ($.19 per share) in 1998.
(b) Comparison of 1997 with 1996
The Company's revenues increased $734,691 (50.93%) from $1,442,459 in 1996
to $2,117,150 in 1997. Primary reasons for the increase were: (1) gold
production increased from 3,956.24 troy ounces in 1996 to 4,869.92 troy
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 for 1997 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 troy ounce at the
end of 1996 to nearly $288 per troy 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.
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 121.67% 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 precious mine experience,
management estimated that gold production from the new winze will
approximate 50,000 troy 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 improved from a loss of
$654,468 ($0.19 per share) in 1996 to a loss of $319,817 ($0.09 per share)
in 1997.
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.
Subsequent Events
On February 17, 1999, the Company issued a press release announcing a
restructuring of its plan of operations and workforce. The move was
designed to conserve capital and encourage mining focused on immediate
gold production. As of March 29, 1999, ten miners continue to mine the
Sixteen to One vein.
The Company has stockpiled sixty tons of gold bearing concentrates from
its mill. Approximately forty tons were sampled and assayed by an
independent assayer. Results indicate that approximately 500 troy ounces
of gold are contained in the concentrates. Management's estimates a
minimum net recovery from these concentrates at $75,000, which will be
included in 1999 operations.
On March 12, 1999, the Board of Directors met in Alleghany. All Directors
who loaned the Company money in 1998 agreed to renew the loan or to
consider converting the principle and accrued interest to common stock
improving the Company's financial position in liquidity. Other accredited
shareholders agreed with the position of the Board.
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 26, 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 67 Secretary/Treasurer
& Director 1990 1986
Leland O. Erdahl 70 Director ---- 1992
Sandor Holly 66 Director ---- 1997
Michael M. Miller 56 President
& Director 1983 1977
Richard C. Sorlien 76 Director 1986
Charles I. Brown-Secretary/Treasurer and Director
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 was Vice President and Chief Financial Officer for AMAX Gold,
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 Administrations, 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 in
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
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,
and remains unchanged.
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 or pension 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 for employees and directors.
Shareholders approved the plan on June 22, 1996.
Management Remuneration for the Period Ended December 31, 1998.
Name/
Principal Annual
Position Year Salary Bonus Compensation Securities
Michael Miller/ 1998 $105,000 ----- ----- -----
President & CEO 1997 $105,000 ----- ----- -----
1996 $105,000 $20,000 ----- -----
The following table summarizes incentive options granted to the president:
Issued June 30, 1998 50,000 shares $2.13 per share
Issued June 30, 1997 50,000 shares $4.73 per share
These options vest ratably over a five year period beginning one year from
the date of grant.
There were no salary increases or cash bonuses granted to the president
during 1998 or 1997.
Non-qualified Stock Options granted to board members are summarized in the
following table:
SHARES EXERCISE PRICE FULLY VESTED
------ -------------- ------------
Issued June 30, 1998 20,000 $1.875 June 30, 2002
Issued June 30, 1997 20,000 $4.00 June 30, 2001
Issued June 30, 1996 15,000 $4.56 June 30, 2000
These options vest ratably over a four year period beginning one year from
the date of grant.
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 496,750 14%
Hull Trading Co.
401 So. LaSalle, Suite. 505
Chicago, IL 60605
Common Kathy N. Hull 496,750 14%
11 Sierra Ave.
Piedmont, CA 94611
Common Michael M. Miller 279,063 8%
Officer and Director
P.O. Box 941
Alleghany, CA 95910
Common Charles I. Brown 173,900 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 Erdahl 30,000 .85%
Director
8046 MacKenzie Court
Las Vegas, NV 89129
Common Sandor Holly 8,100 .23%
Director
23801 Ladrillo Street
Woodland Hills, CA 91367
Common All Officers & Directors 578,313 16.32%
(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
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
March 31, 1999
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 31, 1999
/s/Richard C. Sorlien
Richard C. Sorlien
Director
March 31, 1999
/s/Leland O. Erdahl
Leland O. Erdahl
Director
March 31, 1999
/s/Sandor Holly
Sandor Holly
Director
March 31,1999
<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, 1998 and 1997 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, 1998 F-5
Statements of Cash Flows for each of the three
years in the period ended December 31, 1998 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, 1998 and 1997, and the related
statements of operations, stockholders' equity and cash flows for each of
the three years in the period ended December 31, 1998. 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, 1998 and 1997, and the results
of its operations and its cash flows for each of the three years in the
period ended December 31, 1998 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note
11 to the financial statements, the Company has incurred recurring losses
from operations and has negative working capital that raises substantial
doubt about its ability to continue as a going concern. Management's
plans in regards to these matters are also described in Note 11. The
financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
Perry-Smith & Co., LLP
Certified Public Accountants
Sacramento, California
March 5, 1999
F-1
<PAGE>
ORIGINAL SIXTEEN TO ONE MINE, INC.
BALANCE SHEET
December 31, 1998 and 1997
1998 1997
ASSETS
Current Assets:
Cash $ 25,338 $ 64,452
Accounts receivable - trade 24,931 60,872
Accounts receivable - employees 24,982 36,226
Inventory 414,246 632,676
Other current assets 14,677 22,581
--------- ----------
Total Current Assets 504,174 816,807
--------- ----------
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 799,144 817,020
--------- ----------
1,396,498 1,414,374
--------- ---------
Fixed assets at cost:
Equipment 861,857 859,864
Buildings 170,721 164,546
Vehicles 188,540 188,541
---------- ----------
1,221,118 1,212,951
---------- ----------
Less accumulated depreciation (916,229) (799,601)
--------- ----------
Net fixed assets 304,889 413,350
--------- ----------
Other assets, net of accumulated
amortization of $49,163 and
$46,760 in 1998 and 1997,
respectively 21,657 24,060
--------- ---------
TOTAL ASSETS $2,227,218 $2,668,591
========== ==========
(Continued)
F-2
<PAGE>
ORIGINAL SIXTEEN TO ONE MINE, INC.
BALANCE SHEET
(Continued)
December 31, 1998 and 1997
LIABILITIES & STOCKHOLDERS' EQUITY
1998 1997
Current Liabilities:
Accounts payable & accrued
compensation $ 201,206 $ 168,782
Notes payable to related
parties (Note 3) 302,600 23,000
Notes Payable due within one
year (Note 4) 294,027 298,931
Deferred Income Tax (Note 6) 94,000
--------- ----------
Total Current Liabilities 797,833 584,713
--------- ----------
Notes Payable due after one
year (Note 4) 2,501 7,421
--------- ----------
Total Liabilities 800,334 592,134
--------- ----------
Stockholders' Equity (Note 5):
Common Stock, par value $.10;
10,000,000 shares authorized
in 1998 and 1997; 3,544,065
and 3,534,065 shares issued
and outstanding in 1998 and
1997, respectively 354,407 353,407
Additional paid-in capital 1,373,540 1,357,204
Notes receivable from employees (26,000) (26,000)
(Accumulated deficit)
retained earnings (275,063) 391,846
--------- ----------
Total Stockholders' Equity 1,426,884 2,076,457
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $2,227,218 $2,668,591
========== ==========
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, 1998, 1997 and 1996
1998 1997 1996
Revenues:
Gold and Jewelry Sales $1,466,702 $2,177,150 $1,442,459
---------- ---------- ----------
Operating Expenses:
Salaries and Wages 1,235,724 1,389,567 1,042,861
Depreciation & Amortization 136,907 227,534 102,645
Contract Labor 27,568 42,768 61,613
Telephone & Utilities 129,745 117,374 114,385
Taxes: Property & Payroll 159,860 160,778 164,933
Insurance 171,319 215,725 189,783
Supplies 162,901 302,374 342,027
Small Equipment & Repairs 48,680 52,338 68,537
Drayage 59,757 72,140 63,390
Promotion 6,985 21,632 49,867
Legal & Accounting 62,006 72,359 109,600
Other Expenses 41,607 80,271 80,564
--------- --------- ---------
Total Operating Expenses 2,243,059 2,754,860 2,390,205
Loss from operations (776,357) (577,710) (947,746)
Other income
(expense), net 16,448 (23,107) 26,278
--------- --------- ---------
Loss before income taxes (759,909) (600,817) (921,468)
Income tax benefit, (Note 6) 93,000 281,000 267,000
--------- --------- ---------
Net loss $(666,909) $(319,817) $(654,468)
========== ========== ==========
Basic & diluted loss per
share of common stock
(Note 10) $ (.19) $ (.09) $ (.19)
========== ========== =========
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, 1998, 1997 and 1996
<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, 1996 3,513,062 $ 351,306 $ 1,369,318 $ (52,000) $ 1,366,131 $ 3,034,755
Retired common stock
(Note 5) (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
Issuance of stock
for supplies (Note 9) 10,000 1,000 16,336 17,336
Net loss (666,909) (666,909)
--------- ----------- ------------ ------------- ------------ -----------
Balance, December 31, 1998 3,544,065 $ 354,407 $ 1,373,540 $ (26,000) $ (275,063) $ 1,426,884
========= ========== =========== =========== ============ ===========
<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, 1998, 1997 and 1996
1998 1997 1996
Cash flows from operating
activities:
Net loss $ (666,909) $ (319,817) $ (654,468)
Adjustment to reconcile
net loss to net cash
provided by operating
activities:
Depreciation and
amortization 136,907 227,534 102,645
(Decrease) increase in
accounts receivable 47,185 (70,696) (7,201)
Decrease in inventory 218,430 505,365 1,090,151
(Decrease) increase in
other current assets 7,904 (3,356) (15,504)
Increase in accounts
payable & accrued
compensation 49,760 17,048 95,696
Decrease in income
taxes payable (80,000)
Decrease in deferred
income tax (94,000) (281,000) (261,000)
Gain on sale of asset (5,797)
---------- --------- --------
Net cash (used in)
provided by
operating
activities (300,723) 69,281 270,319
---------- -------- ---------
Cash flows from investing
activities:
Purchase of fixed assets
and mining property (8,167) (98,768) (264,778)
Disposition of fixed assets 27,664
Capitalization of
development costs (184,948)
--------- -------- --------
Net cash used
in investing
activities (8,167) (71,104) (449,726)
--------- -------- --------
(Continued)
F-6
<PAGE>
ORIGINAL SIXTEEN TO ONE MINE, INC.
STATEMENT OF CASH FLOWS
(Continued)
For the Years Ended December 31, 1998, 1995 and 1996
1998 1997 1996
Cash flows from financing
activities:
Increase (decrease) in
related party advances $ 279,600 $ (31,000) $ 54,000
Common stock repurchased (23,013)
Repayment of notes payable (299,438) (4,381) (3,531)
Issuance of notes payable 289,614 31,016 2,973
Proceeds from exercised
stock options 39,000
--------- ---------- ---------
Net cash provided
by financing
activities 269,776 34,635 30,429
--------- --------- --------
(Decrease) increase
in cash (39,114) 32,812 (148,978)
Cash at beginning of year 64,452 31,640 180,618
--------- --------- ---------
Cash at end of year $ 25,338 $ 64,452 $ 31,640
========= ========= =========
Supplemental schedule of
cash payments:
Cash paid during the
year for:
Interest expense $ 31,951 $ 25,965 $ 25,190
Income taxes $ 6,085 $ 90,900
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 $ 33,300
Cancellation of account
payable through issuance
of 10,000 shares of the
Company's common stock
(Note 9) $ (17,336)
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 troy ounces. Accordingly,
capitalized development costs are being amortized using the units of
production method. Amortization expense for the year ended December 31,
1998 and 1997 totaled $17,876 and $81,965, respectively.
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
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 1998.
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 TO RELATED PARTIES
Notes payable to related parties consist of unsecured convertible notes
due to Board members, the President and shareholders. The notes bear
interest at 10% and are due with interest, May 1, 1999. The notes are
convertible into shares of common stock at a price of $1.75 per share.
4. NOTES PAYABLE
Notes payable at December 31, 1998 and 1997 are as follows:
1998 1997
Notes payable to bank; secured by
accounts receivable and inventory;
interest only payments commencing
March 1, 1999 with principal and
interest due July 1, 1999; interest
at the bank's prime rate plus 2.5%
(9.75% at December 31, 1998) $ 199,519 $ 275,000
Note payable to bank; secured by
accounts receivable and inventory;
due in monthly installments of
$2,090 including interest; interest
due monthly at the bank's prime rate
plus 2% (9.75% at December 31, 1998) 90,095 20,000
9.95% note payable; secured by an
automobile; monthly installments
of $442 due through July 27, 2000 6,914 11,352
---------- ---------
296,528 306,352
Less current portion (294,027) (298,931)
---------- ---------
Notes payable due after one year $ 2,501 $ 7,421
========== ==========
Notes payable mature as follows:
Year Ending
December 31, Future Payments
1990 294,027
2000 2,501
----------
$ 296,528
==========
5. 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 non-
qualified 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.
In 1998, 196,000 incentive and 20,000 non-qualified options were issued to
directors and employees. The incentive options vest ratably over a five
year period beginning one year from the grant date and expire ten years
from the grant date. The non-qualified options vest ratably over a four
year period beginning one year from the grant date and expire the years
from the grant date. The average exercise price is $1.98, which
approximates the fair market value of the stock on the date of issuance.
In 1997, 136,000 incentive and 20,000 non-qualified options were issued to
directors and employees. The incentive options vest ratably over a five
year period beginning one year from the grant date and expire ten years
from the grant date. The non-qualified options vest ratably over a four
year period beginning one year from the grant date and expire ten years
from the grant date. The average exercise price is $4.40, which
approximates the fair market value of the stock on the date of issuance.
The Company has adopted the disclosure-only provisions of the Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation". Accordingly, no compensation expense has been recognized
under its stock option plan. Consistent with the disclosure provisions of
SFAS 123, the fair value of each option granted is estimated to be
approximately $.88 and $1.50 in 1998 and 1997, respectively, using an
option-pricing model and the following assumptions:
1998 1997
Dividend yield (not applicable)
Expected volatility 101% 68%
Risk-free interest rate 5% 5%
Expected option life 10 years 10 years
As discussed above, the options granted vest over five years. The pro
forma effect on the 1998 and 1997 losses for options vesting in those
years is not material.
A summary of the activity within the plan follows:
1998 1997 1996
----------------- ----------------- ------------------
Weighted Weighted Weighted
Average Average Average
Exercised Exercised Exercised
Shares Price Shares Price Shares Price
-------- --------- -------- --------- -------- --------
Options out-
standing,
beginning
of year 171,000 $ 4.42 45,000 $ 2.39 30,000 $ 1.30
Options
exercised (30,000) $ 1.30
Options
canceled (10,000) $ 4.31
Options
granted 216,000 $ 1.98 156,000 $ 4.40 15,000 $ 4.56
-------- -------- --------
Options out-
standing,
end of
year 377,000 $ 3.02 171,000 $ 4.42 45,000 $ 2.39
======== ======== =======
Options
exercis-
able, end
of year 37,700 $ 4.43 3,000 $ 4.56 30,000 $1.30
========= ======== ========
A summary of options outstanding at December 31, 1998 follows:
Range Number of Options Weighted Average Number of Options
of Outstanding Remaining Exercisable
Exercise December 31, Contractual Life December 31,
Prices 1998 1998
- - -------- ---------------- ---------------- -----------------
$1.88 20,000 9.5 years
$1.94 146,000 9.5 years
$2.13 50,000 9.5 years
$4.00 20,000 8.5 years 5,000
$4.31 76,000 8.5 years 15,200
$4.56 15,000 7.5 years 7,500
$4.73 50,000 8.5 years 10,000
---------------- ---------------
377,000 37,700
================ ===============
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.
6. INCOME TAXES
The income tax (benefit) expense for the years ended December 31, 1998,
1997 and 1996 consisted of the following:
Federal State Total
--------- --------- ---------
1998
Current $ 1,000 $ 1,000
Deferred $ (58,000) (36,000) (94,000)
---------- ---------- ----------
Income tax benefit $ (58,000) $ (35,000) $ (93,000)
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 $(220,000) $ (47,000) $(267,000)
========== ========== ===========
Deferred tax assets (liabilities) are comprised of the following:
1998 1997
Deferred tax assets:
Net operating loss carryovers $ 382,000 $ 149,000
Accounts payable
and other liabilities 68,000 57,000
Alternative minimum tax credit 100,000 33,000
State tax benefit 56,000
--------- ---------
Total deferred tax assets 550,000 295,000
---------- ----------
Deferred tax liabilities:
Tax basis recognition
of gold revenue (178,000) (271,000)
Book basis of mineral
property & fixed assets (148,000) (118,000)
State tax liability (4,000)
---------- ---------
Total deferred tax liabilities (330,000) (389,000)
Total deferred tax liabilities (220,000)
--------- ----------
Net deferred tax assets
(liabilities) $ 0 $ (94,000)
========== ==========
The Company has recorded a valuation allowance amounting to the entire
deferred tax asset balance. The Company's deferred tax asset is primarily
attributable to net operating loss carryforward for tax reporting
purposes. The lack of consistent earnings, the Company's financial
condition and potential limitations on the use of carryforwards give rise
to uncertainty as to whether the deferred tax asset is realizable.
A reconciliation of the income tax benefit per the U.S. Federal statutory
rate to the reported income tax expense follows:
1998 1997 1996
-------- -------- --------
U.S. Federal statutory rate
applied to pre-tax loss $ (302,000) $ (204,000) $ (313,000)
Depletion deduction (23,000)
Tax benefit of net
operating loss (45,000) (19,000)
Alternative minimum tax 21,000
Valuation allowance 220,000
Other (11,000) (32,000) 67,000
--------- -------- --------
Income tax (benefit)
expense $ (93,000) $ (281,000) $ (267,000)
========== ========== ==========
For Federal income tax purposes, the Company has operating loss
carryforwards totaling approximately $1,033,000 and $355,000
respectively, which may provide future tax benefits, expiring in 2007.
7. 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).
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,
1998 and 1997, because of the relatively short maturity of these
instruments. The carrying value of inventory is based upon quoted market
prices.
9. ISSUANCE OF STOCK
In November 1998, the Company issued 10,000 shares of common stock to a
supplier to settle a trade payable to the supplier totaling $17,336.
10. 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, 1998
Basic and dilutive
loss per share $ (759,909) 3,539,065 $ (.19)
========== ========= =========
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)
========== ========= ========
For the years ended December 31, 1998 and 1997, conversion of outstanding
stock options was not assumed because assumed conversion would have an
anti-dilutive effect on earnings per share.
11. FINANCIAL RESULTS AND LIQUIDITY
The Company has incurred net losses of $666,909, $319,817 and $654,468 in
1998, 1997 and 1996, respectively. In addition, current liabilities
exceed current assets by $293,659. To meet current obligations as they
become due, the Company must achieve and sustain profitable operations.
Management is in the process of implementing a business plan which will
reduce operating expenses and generate additional revenues. The final
stages of contract negotiations to harvest timber on the Company's
properties are currently in process. Management believes these contracts
will result in substantial revenues. Negotiations to convert notes
payable to related parties (Note 3) to equity or to extend the maturity of
the notes to May 1, 2000 are also in process. Further, management is
actively working to establish an agreement which would result in an
infusion of capital from an outside investor. If successful, management
believes their business plan will generate sufficient revenue and cash
flows to meet obligations as they become due and sustain the current level
of operations.
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 25,338
<SECURITIES> 0
<RECEIVABLES> 49,913
<ALLOWANCES> 0
<INVENTORY> 414,246
<CURRENT-ASSETS> 36,334
<PP&E> 2,617,616
<DEPRECIATION> 916,229
<TOTAL-ASSETS> 2,227,218
<CURRENT-LIABILITIES> 800,334
<BONDS> 0
0
0
<COMMON> 354,407
<OTHER-SE> 1,072,477
<TOTAL-LIABILITY-AND-EQUITY> 2,227,218
<SALES> 1,466,702
<TOTAL-REVENUES> 1,466,702
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,243,059
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31,951
<INCOME-PRETAX> (759,909)
<INCOME-TAX> (93,000)
<INCOME-CONTINUING> (666,909)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (666,909)
<EPS-PRIMARY> (0.19)
<EPS-DILUTED> (0.19)
</TABLE>
