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, 1999
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 on December 31, 1999: $2,351,027.
The number of shares outstanding of the registrant's common stock, $.10
par value: 4,154,340 at December 31, 1999.
<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 1,104,500 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 elevations. The Company's activities are presently focused on
the 800 foot level, 1500 foot level and 1700 foot level. When the miners
are tunneling, they average about 5 linear feet of progress per day.
Periodically, the miners drift outward on quartz veins. Gold is not
distributed evenly within the quartz veins; however, within the Company's
mine, concentrations of gold deposits are found within these 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 1999
(February), the Company significantly altered its mining operation. The
scope of mining activities was reduced with emphasis placed on short term
underground headings most likely to yield immediate gold. 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 continues to explore the possibilities of advanced metal
detection, a new technology. If new technology works as preliminary tests
within the Company's mine indicate, 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 jewelry
manufacturers, 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 tunnel entrance (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 when funding becomes available.
In 1999, the Company acquired the Plumbago mine in the Alleghany Mining
District. The mine is 20 patented acres and has a history of rich ore
production. The Company will pursue the potential within this property
when funding becomes available for exploration and development. However,
there can be no assurances that such funding will be available to the
Company in the foreseeable future.
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, 1999, it had 14 full-time plus three part-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 two years, 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 38,500
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 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, 1999 was $308,420 (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 will have a minimal impact if any on the
Company as its use of computers is limited to Windows operating systems on
personal computers linked to an internal network. Since the accounting
software is of main concern, the Company purchased and implemented a Y2K
compliant accounting software package January 1, 1999 to avert any
potential Y2K issues. 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.
(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 25 patented claims (432
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
Marion Lode
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
MINERAL RIGHTS - PATENTED CLAIMS
NAME OF CLAIM NAME OF CLAIM
Standard Lode Standard Lode Extension
Gold Beater Lode Clute Lode
Hope Extension Lode Crafts Lode
Plumbago Mine Mill Site Enterprise Quartz
MINERAL RIGHTS - UNPATENTED CLAIMS
NAME OF CLAIM NAME OF CLAIM
Rattlesnake Quartz Eclipse
Eclipse Extension White Oak
Dog Wood Highview
Lucky Cross Aetna
Marion Extension Vaughn #1
Harold #1 Vaughn #2
Harold #2 Reliance
Fighting Bob Plumbago
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.
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
High Low High Low High Low High Low
------ ----- ------ ----- ------ ----- ------ -----
1999 $1.06 $ .69 $1.25 $ .50 $1.06 $ .69 $1.06 $ .63
1998 2.19 1.63 2.06 1.56 2.06 .88 1.25 .88
1997 3.88 3.25 4.25 2.88 4.00 2.88 3.00 1.88
1996 4.63 3.75 4.75 4.31 4.56 4.13 4.00 3.75
1995 3.94 3.25 3.75 2.63 5.25 3.13 4.88 3.75
1994 7.50 4.75 6.25 5.50 5.75 4.25 3.75 3.38
Note: All amounts are rounded to the nearest cent
Shareholders
As of December 31, 1999, there were 1,128 holders of common stock.
ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
Management's discussion and analysis should be read in conjunction with
the Company's audited Financial Statements including the Notes thereto
included in this Form 10-KSB.
Balance Sheet Comparisons of 1999 with 1998
The Company's decrease in current assets of $153,763 (30.49%) was
attributed to gold being sold from inventory, due to the lack of a
significant discovery of gold, to maintain day-to-day operations. Mining
property increased due to the acquisition of the Plumbago mine. Reduction
of fixed assets (equipment) was attributed to the sale of two loaders.
Total assets decreased $213,334 (9.57%).
The Company's total liabilities decreased $385,015 (48.10%). The primary
decrease is due to (1) reduction in accounts payable and accrued
compensation, (2) paydown of a notes payable to the bank and (3)
conversion of notes payable to related parties into common stock.
Shares of the Company's common stock were issued during 1999 to (1) settle
outstanding notes payable to related parties, (2) reduce the Company's
obligation to a service provider, (3) compensation to key employees in
conjunction with their re-hire and (4) purchase the Plumbago property.
Twenty-five thousand shares of common stock were retired, which cancelled
an outstanding notes receivable from employees.
Statement of Operations
(a) Comparison of 1999 with 1998
On February 12, 1999, the Company significantly altered its mining
operation. Forty employees were terminated. Fourteen returned as
independent contractors. Compensation was based upon a percentage of the
gold mined and sold. On July 1, 1999, eight former employees remained as
independent contractors. The scope of mining activities was reduced with
emphasis placed on short term underground headings most likely to yield
immediate gold. Effective October 2, 1999, a crew of 13 was re-hired and
on the Company's payroll.
Mining to produce gold ceased on August 29, 1999, due to a mine closure
order imposed by the Mining Safety and Health Administration (MSHA) based
on a contested citation regarding the second exit. Subsequently, a plan
of operation was proposed to negate the closure by developing a new raise
between the 1700 foot level and the 1500 foot level north of the Tightner
Shaft moving the direction of work to the northern part of the mine.
It is difficult to evaluate line by line changes in the financial
statements due to the significant changes in operations over the reporting
periods. Gold (dore), specimen and jewelry revenues decreased
dramatically due to the diminished production of the mining operation as
fewer miners worked underground. The decrease in total revenues for the
year-end December 31, 1999 compared to year-end December 31, 1998 was not
as pronounced due to supplemental timber harvest revenues during the
latter part of the year.
Wages affected by the change in operation were due to (1) fewer employees
and (2) reclassification into the contract labor category. Consumables,
such as supplies, drayage and utilities, decreased because of the
reduction in mining and the type of mining conducted commencing on
February 12, 1999.
Interest expense increased $52,257 (163.56%) from $31,951 at December 31,
1998 to $84,208 at December 1999, due to accumulated interest on notes
payable to related parties. The notes and interest were paid-in-full to
the related parties in 1999.
Due to reduced operating levels and supplemental timber revenues, the
Company's operating losses decreased from $666,909 ($.19/share) in 1998 to
$308,784 ($.08/share) in 1999.
(b) 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.
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 an average of $1 million of gold over a five year
period, 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
(a) Year 2000
The Company has experienced no adverse effect from the Y2K phenomenon.
(b) Operations
The Mine Safety and Health Administration (MSHA) lifted its restrictive
closure order on the Alleghany mine effective January 17, 2000.
Accordingly, the Company re-established gold production from its
properties in the Alleghany Mining District during the first quarter of
2000 and the production was adequate to pay operating expenses during this
period without having to resort to outside financing. Although the
Company is optimistic about its ability to continue gold production at the
current or higher levels using an improved metal detection technology,
there can be no assurances in the absence of proven reserves, that
production at these levels can be sustained.
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 17, 2000. All of the officers of the Company
serve at the pleasure of the board of directors.
Name Age Position Officer Since Director Since
Michael M. Miller 57 President
& Director 1983 1977
Charles I. Brown 68 Secretary
& Director 1990 1986
Sandor Holly 67 Vice President
of Technology
& Director 1999 1997
Scott K. Robertson 43 Treasurer
& Director 1999 1999
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, 1993, 1999 and 2000). 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.
Charles I. Brown-Secretary 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. Prior to his retirement in
1997, he served as a Trustee of the Colorado State University Research
Foundation and the Colorado Outward Bound School. He is a past 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.
Sandor Holly-Vice-President of Technology & 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.
Scott K. Robertson-Treasurer & Director
Mr. Scott K. Robertson has been active in the Company since 1984 as an
outside accountant. In 1992, Mr. Robertson co-founded the CPA and
business development firm Robertson, Woodford, & Francis, LLP located in
Grass Valley, California. He is active as the director and owner of
several companies including a medical start-up, KNCO AM & FM Radio in
Grass Valley, an aromatherapy soap and bath products manufacturer and a
toy company.
Mr. Robertson is also a past president of the Economic Resource Council,
Rotary Club of Grass Valley and Nevada County Business Association, all
located in Nevada County, California. He was an instructor at Sierra
College for twelve years.
Mr. Robertson received his bachelor's degree in Business Economics in 1981
from the University of California at Santa Barbara, and his CPA
certificate in 1986.
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 an annual $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, 1999
Name/
Principal Annual
Position Year Salary Bonus Compensation Securities
Michael Miller/ 1999 $ 75,000 ----- ------ ------
President & CEO 1998 $105,000 ----- ----- -----
1997 $105,000 ----- ----- -----
The following table summarizes incentive options granted to the president:
Issued Sept.24, 1999 150,000 shares $ .6875 per share
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.
Non-qualified Stock Options granted to board members are summarized in the
following table:
SHARES EXERCISE PRICE FULLY VESTED
------ -------------- ------------
Issued June 30, 1999 15,000 $1.125 June 30, 2003
Issued June 30, 1998 10,000 $1.875 June 30, 2002
Issued June 30, 1997 10,000 $4.00 June 30, 2001
These options vest ratably over a four year period beginning one year from
the date of grant and expire ten years after 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 654,274 16%
Hull Trading Co.
401 So. LaSalle, Suite. 505
Chicago, IL 60605
Common Kathy N. Hull 496,750 12%
11 Sierra Ave.
Piedmont, CA 94611
Common Michael M. Miller 420,999 10%
Officer and Director
P.O. Box 941
Alleghany, CA 95910
Common Charles I. Brown 263,592 6%
Officer and Director
Charles I. Brown Family Partnership, LTD
PMB 31029, P.O. Box 185
Wilson, WY 83014-0185
Common Sandor Holly 22,224 .5%
Officer and Director
23801 Ladrillo Street
Woodland Hills, CA 91367
Common Scott K. Robertson 27,850 .7%
Officer and Director
12391 Deer Park Drive
Nevada City, CA 95945
Common All Officers & Directors 734,665 17.7%
(as a group)
ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions is
detailed under Item 6: Management's Discussion and Analysis of Financial
Condition and Results, and Note 3 Notes Payable to Related Parties in the Notes
to Financial Statements.
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/Michael M. Miller
Michael M. Miller
President and Director
March 29, 2000
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/Charles I. Brown
Charles I. Brown
Secretary and Director
March 29, 2000
/s/Scott K. Robertson
Scott K. Robertson
Treasurer and Director
March 29, 2000
/s/Sandor Holly
Sandor Holly
Vice President of Technology and Director
March 29, 2000
<PAGE>
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, 1999 and 1998 F-2
Statement of Operations for each of the three
years in the period ended December 31, 1999 F-4
Statement of Stockholders' Equity for each of
the three years in the period ended
December 31, 1999 F-5
Statements of Cash Flows for each of the three
years in the period ended December 31, 1999 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, 1999 and 1998, and the related
statements of operations, stockholders' equity and cash flows for each of
the three years in the period ended December 31, 1999. 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, 1999 and 1998, and the results
of its operations and its cash flows for each of the three years in the
period ended December 31, 1999 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 3, 2000
F-1
<PAGE>
ORIGINAL SIXTEEN TO ONE MINE, INC.
BALANCE SHEET
December 31, 1999 and 1998
1999 1998
------ ------
ASSETS
Current assets:
Cash $ 680 $ 25,338
Accounts receivable - trade 23,477 24,931
Accounts receivable - employees 6,653 24,982
Inventory 308,420 414,246
Other current assets 11,181 14,677
--------- ----------
Total current assets 350,411 504,174
--------- ----------
Mining property (Note 2):
Real estate and property rights,
net of depletion of $524,145 182,091 182,091
Real estate and mineral properties 473,323 415,263
Development costs, net 799,144 799,144
--------- ----------
1,454,558 1,396,498
--------- ---------
Fixed assets at cost:
Equipment 810,806 861,857
Buildings 170,721 170,721
Vehicles 184,805 188,540
---------- ----------
1,166,332 1,221,118
---------- ----------
Less accumulated depreciation (973,282) (916,229)
--------- ----------
Net fixed assets 193,050 304,889
--------- ----------
Other assets, net of accumulated
amortization of $54,955 and
$49,163 in 1999 and 1998,
respectively 15,865 21,657
--------- ---------
$2,013,884 $2,227,218
========== ==========
(Continued)
F-2
<PAGE>
ORIGINAL SIXTEEN TO ONE MINE, INC.
BALANCE SHEET
(Continued)
December 31, 1999 and 1998
LIABILITIES & STOCKHOLDERS' EQUITY
1999 1998
------ ------
Current liabilities:
Accounts payable & accrued
compensation $ 184,060 $ 201,206
Due to related parties (Note 4) 54,458 2,600
Notes payable to related
parties (Note 3) 300,000
Notes payable due within one
year (Note 5) 176,801 294,027
--------- ----------
Total current liabilities 415,319 797,833
--------- ----------
Notes payable due after one
year (Note 5) 2,501
--------- ----------
Total liabilities 415,319 800,334
--------- ----------
Stockholders' equity (Note 6):
Common stock, par value $.10;
10,000,000 shares authorized
in 1999 and 1998; 4,154,340
and 3,544,065 shares issued
and outstanding in 1999 and
1998, respectively 415,434 354,407
Additional paid-in capital 1,758,978 1,373,540
Notes receivable from employees (26,000)
Accumulated deficit (575,847) (275,063)
--------- ----------
Total stockholders' equity 1,598,565 1,426,884
---------- ----------
$2,013,884 $2,227,218
========== ==========
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, 1999, 1998 and 1997
1999 1998 1997
------ ------ ------
Revenues:
Gold and jewelry sales $ 538,727 $1,466,702 $2,177,150
Timber sales 303,091
---------- ---------- ----------
Total revenues 841,818 1,466,702 2,177,150
---------- ---------- ----------
Operating expenses:
Salaries and wages 408,559 1,235,724 1,389,567
Depreciation and amortization 94,212 136,907 227,534
Contract labor 93,908 27,568 42,768
Telephone and utilities 70,497 129,745 117,374
Taxes: property and payroll 91,651 159,860 160,778
Insurance 115,575 171,319 215,725
Supplies 45,977 162,901 302,374
Small equipment and repairs 28,736 48,680 52,338
Drayage 21,799 59,757 72,140
Promotion 5,818 6,985 21,632
Legal and accounting 46,241 62,006 72,359
Other expenses 48,358 41,607 80,271
--------- --------- ---------
Total operating expenses 1,071,331 2,243,059 2,754,860
--------- --------- ---------
Loss from operations (229,513) (776,357) (577,710)
Other (expense) income:
Interest expense & late charges (84,208) (31,951) (25,965)
Other expense (7,665) (10,495) (10,444)
Other income 21,602 58,894 13,302
--------- --------- --------
Total other (expense) income (70,271) 16,448 (23,107)
--------- --------- --------
Loss before income taxes (299,784) (759,909) (600,817)
Income tax expense
(benefit)(Note 7) 1,000 (93,000) (281,000)
--------- --------- ---------
Net loss $(300,784) $(666,909) $(319,817)
========== ========= =========
Basic and diluted loss per
share of common stock
(Note 10) $ (.08) $ (.19) $ (.09)
========== ========= =========
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, 1997 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
Issuance of stock for
purchase of mining
property (Note 2) 46,250 4,625 41,625 46,250
Issuance of stock for
services (Note 4) 25,000 2,500 22,500 25,000
Issuance of stock for
conversion of related
party notes payable and
related interest and
expenses (Note 3) 512,889 51,289 333,349 384,638
Issuance of stock to
employees (Note 4) 46,136 4,613 11,964 16,577
Retired common stock
(Note 6) (20,000) (2,000) (24,000) 26,000
Net loss (300,784) (300,784)
--------- ---------- ----------- ------------ ---------- -----------
Balance, December 31, 1999 4,154,340 $ 415,434 $ 1,758,978 $ 0 $ (575,847) $ 1,598,565
========= ========== =========== ============ ========== ===========
<FN>
The accompanying notes are an integral
part of these financial statements.
F-5
</FN>
</TABLE>
<PAGE>
ORIGINAL SIXTEEN TO ONE MINE, INC.
STATEMENT OF CASH FLOWS
For the Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
--------- ---------- ----------
Cash flows from operating
activities:
Net loss $ (300,784) $ (666,909) $ (319,817)
Adjustment to reconcile
net loss to net cash
provided by (used in)
operating activities:
Depreciation and
amortization 94,212 136,907 227,534
Decrease (increase) in
accounts receivable 19,783 47,185 (70,696)
Decrease in inventory 105,826 218,430 505,365
Decrease (increase) in
other current assets 3,496 7,904 (3,356)
Increase in accounts
payable due to related
parties and accrued
compensation 34,712 49,760 17,048
Issuance of common stock
in lieu of cash 126,215
Decrease in deferred
income tax (94,000) (281,000)
Gain on sale of asset (5,797)
---------- --------- ---------
Net cash provided
by (used in)
operating
activities 83,460 (300,723) 69,281
---------- -------- ----------
Cash flows from investing
activities:
Purchase of fixed assets
and mining property (11,810) (8,167) (98,768)
Disposition of fixed assets 23,419 27,664
--------- -------- --------
Net cash provided
by(used in)
investing
activities 11,609 (8,167) (71,104)
--------- -------- ---------
(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
1999 1998 1997
---------- ---------- ----------
Cash flows from financing
activities:
Increase (decrease) in
related party advances $ 279,600 $ (31,000)
Repayment of notes payable $ (119,727) (299,438) (4,381)
Issuance of notes payable 289,614 31,016
Proceeds from exercised
stock options 39,000
--------- ---------- ---------
Net cash (used in)
provided by
financing
activities (119,727) 269,776 34,635
--------- --------- --------
(Decrease) increase
in cash (24,658) (39,114) 32,812
Cash at beginning of year 25,338 64,452 31,640
--------- --------- ---------
Cash at end of year $ 680 $ 25,338 $ 64,452
========== ========= =========
Supplemental schedule of
cash payments:
Cash paid during the
year for:
Interest expense $ 84,208 $ 31,951 $ 25,965
Income taxes $ 800 $ 6,085
Supplemental schedule of
noncash inventing and
financing activities:
Purchase of mining property
with issuance of the
Company's restricted
common stock (Note 2) $ 46,250
Cancellation of account
payable through issuance
of the Company's common
stock (Notes 4 and 10)) $ 27,600 $ 17,336
Conversion of related
party notes payable to
Company's restricted
common stock (Note 3) $ 300,000
Compensation, interest and
other expenses settled
with issuance of
restricted stock (Notes
3 and 4) $ 98,615
Retirement of note
receivable in exchange
for return of common
stock (Note 6) $ 26,000
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"), a California
corporation, 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. The Company stores approximately 120
fifty-five gallon barrels of sulfides, a mining byproduct containing gold
particles on its property. The sulfides are excluded from the Company's
inventory due to significant uncertainties related to estimating the gold
content and the related recovery costs.
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).
Timber Revenue
During 1999, mining operations were supplemented by harvesting timber on
property owned by the Company. The Company's timber reserves are not
recorded because management has not determined an estimated value.
Accordingly, timber revenues are recorded, net of expense, at the date of
harvest.
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 totaled $17,876. This area was not mined in 1999. Accordingly, the
Company did not record amortization expense.
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, development
costs 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 generally 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. 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. 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.
Restricted Common Stock
Shares of the Company's restricted common stock cannot be sold within two
years of the issuance date. After the required holding period, the
shareholder can take steps to remove the indicated restriction. At
December 31, 1999 and 1998, the Company's stock transfer agent indicated
1,099,542 and 509,267 shares are restricted.
Reclassifications
Certain reclassifications have been made to prior year balances to conform
to classifications used in 1999.
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. The 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. In 1996 additional
costs totaling $76,574 were capitalized related to the legal defense of
certain mining claims. Subsequent purchases of real estate and mineral
properties include the Brown Bear mine in 1994 for $300,000 and the
Plumbago mine in 1999 in exchange for 50,000 restricted shares of the
Company's common stock (3,750 of those shares to be issued in 2000).
3. NOTES PAYABLE TO RELATED PARTIES
During 1998, notes payable to related parties consisted of $300,000 in
unsecured notes, convertible to common stock at $1.75 per share, to Board
members, the President and shareholders. The notes bore interest at 10%
and were due May 1, 1999. The Company was in default under the terms of
these notes and ultimately settled the notes by issuing common stock to
the note holders at $.75 per share. Certain other obligations to these
individuals totaling $39,667 were also settled through the issuance of
common stock at $.75 per share (which approximated the market price at the
issuance date).
4. RELATED PARTY TRANSACTIONS
In June 1999, the Company negotiated with a service provider to settle an
outstanding trade payable. The service provider waived interest charges
and accepted 25,000 shares of restricted stock in return for a $25,000
reduction in the Company's obligation. Subsequent to the completion of
the negotiated settlement, a principal owner of the service provider was
appointed to the Company's Board of Directors. At December 31, 1999, the
remaining balance due of $17,000 is included in amounts due to related
parties.
Accrued compensation totals $37,458 and represents a six-month salary
deferral voluntarily accepted by the Company's President. Additionally,
employees received 46,136 shares of common stock for services provided to
the Company. Compensation expense totaling $16,577 was recognized in
conjunction with the awarding of these shares.
5. NOTES PAYABLE
Notes payable at December 31, 1999 and 1997 are as follows:
1999 1998
-------- --------
Notes payable to bank; secured by
accounts receivable and inventory;
interest only payments commencing
March 1, 1999 with principal and
interest due July 1, 2000; interest
at the bank's prime rate plus 2.5%
(11.0%) at December 31, 1999) $ 100,000 $ 199,519
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 3% (11.5% at December 31, 1999) 76,801 90,095
Other 6,914
---------- ---------
176,801 296,528
Less current portion (176,801) (294,027)
---------- ---------
Notes payable due after one year $ - $ 2,501
========== ==========
5. STOCKHOLDERS' EQUITY
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 1999, 195,000 incentive and 15,000 non-qualified options were issued to
employees and directors. 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 $.71, which
approximates the fair market value of the stock on the date of issuance.
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 ten 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.
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 $.30 and $.88 in 1999 and 1998, respectively, using an
option-pricing model and the following assumptions:
1999 1998
-------- --------
Dividend yield (not applicable)
Expected volatility 101% 101%
Risk-free interest rate 5% 5%
Expected option life 10 years 10 years
As discussed above, the options granted vest over four to five years. The
pro forma effect on the 1999 and 1998 losses for options vesting in those
years is not material.
A summary of the activity within the plan follows:
1999 1998 1997
----------------- ----------------- ------------------
Weighted Weighted Weighted
Average Average Average
Exercised Exercised Exercised
Shares Price Shares Price Shares Price
-------- --------- -------- --------- -------- --------
Options out-
standing,
beginning
of year 377,000 $ 3.02 171,000 $ 4.42 45,000 $ 2.39
Options
exercised (30,000) $ 1.30
Options
canceled (248,000) $ 2.85 (10,000) $ 4.31
Options
granted 210,000 $ .71 216,000 $ 1.98 156,000 $ 4.40
-------- -------- --------
Options out-
standing,
end of
year 339,000 $ 1.71 377,000 $ 3.02 171,000 $ 4.42
======== ======== =======
Options
exercis-
able, end
of year 42,050 $ 3.79 37,700 $ 4.43 3,000 $ 4.56
========= ======== ========
A summary of options outstanding at December 31, 1999 follows:
Range Number of Options Weighted Average Number of Options
of Outstanding Remaining Exercisable
Exercise December 31, Contractual Life December 31,
Prices 1999 1999
- -------- ---------------- ---------------- -----------------
$4.56 5,000 6.5 years 3,750
$4.74 50,000 8.5 years 20,000
$1.94 4,000 8.5 years 800
$2.13 50,000 8.5 years 10,000
$4.00 10,000 7.5 years 5,000
$1.88 10,000 8.5 years 2,500
$ .63 45,000 9.5 years
$ .69 150,000 9.5 years
$1.12 15,000 9.5 years
---------------- ---------------
339,000 42,050
================ ===============
In 1999, the Company purchased and retired 20,000 shares of stock issued
to an employee in exchange for a $26,000 note receivable. The note
receivable and accrued interest were forgiven concurrent with the
retirement of shares.
7. INCOME TAXES
The income tax expense (benefit) for the years ended December 31, 1999,
1998 and 1997 consisted of the following:
Federal State Total
--------- --------- ---------
1999
Current $ 1,000 $ 1,000
Deferred
--------- ---------- ---------
Income tax expense $ - $ 1,000 $ 1,000
========== =========== ==========
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)
========== ========== ==========
Deferred tax assets (liabilities) are comprised of the following:
1999 1998
-------- --------
Deferred tax assets:
Net operating loss carryover $ 469,000 $ 382,000
Accounts payable
and other liabilities 83,000 68,000
Alternative minimum tax credit 100,000 100,000
--------- ---------
Total deferred tax assets 652,000 550,000
---------- ----------
Deferred tax liabilities:
Tax basis recognition
of gold revenue (132,000) (178,000)
Book basis of mineral
property & fixed assets (196,000) (148,000)
State tax liability (6,000) (4,000)
---------- ----------
Total deferred tax liabilities (334,000) (330,000)
Valuation allowance (318,000) (220,000)
---------- -----------
Net deferred tax assets
(liabilities) $ 0 $ 0
========== ===========
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:
1999 1998 1997
-------- -------- --------
U.S. Federal statutory rate
applied to pre-tax loss $ (97,000) $ (302,000) $ (204,000)
Tax benefit of net
operating loss (45,000)
Valuation allowance 98,000 220,000
Other (11,000) (32,000)
--------- --------- ---------
Income tax expense
(benefit) $ 1,000 $ (93,000) $ (281,000)
========== =========== ===========
The Company had the following Federal and State net operating loss
carryforward at December 31, 1999:
Net Operating
Loss Expiration
Carryforward Date
------------ ----------
Federal $ 276,000 2006
49,000 2007
7,000 2011
151,000 2012
545,000 2018
230,000 2019
-----------
$ 1,258,000
===========
State $ 78,000 2002
274,000 2003
115,000 2004
-----------
$ 467,000
===========
8. SAVINGS INCENTIVE MATCH PLAN
The Company's Savings Incentive Match Plan for Employees (SIMPLE) is
available to all employees who meet the Plan's eligibility requirements.
All contributions under the plan are fully vested and non-forfeitable.
The Company has the option to make matching or non-elective contributions
to the Plan. For the years ended December 31, 1999 and 1998, the Company
contributed $5,338 and $5,060, respectively.
9. 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,
1999 and 1998, because of the relatively short maturity of these
instruments. The carrying value of inventory is based upon quoted market
prices.
10. EARNINGS PER SHARE
Earnings per share are calculated below by dividing the net loss by the
weighted average number of shares outstanding. The weighted average
number of shares outstanding is determined by the relative portion of time
within each year that the shares have been outstanding to the whole year.
Weighted
Average
Number of
Net (Loss) Shares Per Share
For the Year Ended Income Outstanding Amount
- --------------------------- ----------- ----------- -----------
December 31, 1999
Basic and dilutive
loss per share $ (300,784) 3,675,908 $ (.08)
========== ========= =========
December 31, 1998
Basic and dilutive
loss per share $ (666,909) 3,539,065 $ (.19)
========== ========= =========
December 31, 1997
Basic and dilutive
loss per share $ (319,817) 3,519,066 $ (.09)
========== ========= ========
For the years ended December 31, 1999, 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 $300,784, $666,909 and $319,817 in
1999, 1998 and 1997, respectively. In addition, current liabilities
exceed current assets by $64,908 at December 31, 1999. To meet current
obligations as they become due, the Company must achieve and sustain
profitable operations.
In 1999, Management implemented a plan that included reducing operating
expenses, harvesting timber on Company land, negotiating the conversion of
notes payable to common stock and obtaining additional equity financing
from an outside source. Management was successful in implementing the
plan outlined with the exception of obtaining additional outside equity
financing. Operating losses were reduced but not eliminated. Management
plans to continue harvesting timber and seeking outside equity investments
to provide sufficient working capital to sustain mining operations in the
event gold production and revenue are inadequate.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 680
<SECURITIES> 0
<RECEIVABLES> 30,130
<ALLOWANCES> 0
<INVENTORY> 308,420
<CURRENT-ASSETS> 27,046
<PP&E> 2,620,890
<DEPRECIATION> 973,282
<TOTAL-ASSETS> 2,013,884
<CURRENT-LIABILITIES> 415,319
<BONDS> 0
0
0
<COMMON> 415,434
<OTHER-SE> 1,183,131
<TOTAL-LIABILITY-AND-EQUITY> 2,013,884
<SALES> 841,818
<TOTAL-REVENUES> 841,818
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,071,331
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 84,208
<INCOME-PRETAX> (299,784)
<INCOME-TAX> 1,000
<INCOME-CONTINUING> (300,784)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (300,784)
<EPS-BASIC> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
