<PAGE> 1
FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
COMMISSION FILE NUMBER 0-16436
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PIEDMONT MINING COMPANY, INC.
(Exact name of small business issuer as specified in its charter)
NORTH CAROLINA 56-1378516
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
4215 STUART ANDREW BOULEVARD
CHARLOTTE, NORTH CAROLINA 28217
(Address of principal executive offices)
(704) 523-6866
(Issuer's telephone number)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act 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
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date:
COMMON STOCK, NO PAR VALUE--15,043,869 SHARES OUTSTANDING
AS OF MAY 15, 1996
<PAGE> 2
INDEX
PIEDMONT MINING COMPANY, INC.
PART I. FINANCIAL INFORMATION
<TABLE>
<S> <C>
Item 1. Financial Statements. Page
Consolidated Condensed Balance Sheets--March 31, 1996 3
(unaudited) and December 31, 1995
Consolidated Condensed Statements of Operations (unaudited)-- 4
Three months ended March 31, 1996 and March 31, 1995
Consolidated Condensed Statements of Cash Flows 5
(unaudited)--Three months ended March 31, 1996 and
March 31, 1995
Notes to Consolidated Condensed Financial Statements 6
(unaudited)--March 31, 1996
Item 2. Management's Discussion and Analysis of 10
Financial Condition and Results of Operations.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. 14
SIGNATURES 15
</TABLE>
2
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<TABLE>
<CAPTION>
PIEDMONT MINING COMPANY, INC
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS At At
March 31 December 31
1996 1995
----------- -----------
(unaudited)
<S> <C> <C>
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
CURRENT ASSETS
Cash and cash equivalents (including
$0 and $0 relating to the
Haile Mining Venture) $ 607,000 $ 782,000
Investment in Amax Gold common stock (Note B) 1,656,000 1,830,000
Accounts receivable 28,000 28,000
------------- ------------
TOTAL CURRENT ASSETS 2,291,000 2,640,000
PROPERTY AND EQUIPMENT (including $237,000
and $245,000 relating to the Haile
Mining Venture) 275,000 286,000
OTHER ASSETS
Deferred costs, net of accumulated
amortization (including $1,536,000 relating
to the Haile Mining Venture) 1,754,000 1,754,000
Other 4,000 4,000
------------- ------------
TOTAL OTHER ASSETS 1,758,000 1,758,000
------------- ------------
TOTAL ASSETS 4,324,000 $ 4,684,000
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable (including $295,000 and
$234,000 relating to Haile Mining Venture) $ 375,000 $ 288,000
Accrued venture costs (Note C) 371,000 315,000
Accrued salaries and wages 6,000 9,000
Accrued arbitration award (Note E) 1,370,000 1,370,000
TOTAL CURRENT LIABILITIES ------------- ------------
2,122,000 1,982,000
ACCRUED RECLAMATION COSTS 125,000 125,000
------------- ------------
DEFERRED GAIN 7,019,000 7,019,000
Less accumulated amortization (6,465,000) (6,341,000)
------------- ------------
554,000 678,000
SHAREHOLDERS' EQUITY
Common Stock 11,157,000 11,157,000
Contributed capital 317,000 317,000
Accumulated deficit (10,190,000) (9,882,000)
Unrealized gain on available-for-sale
securities (Note C) 239,000 307,000
------------- ------------
TOTAL SHAREHOLDERS' EQUITY
1,523,000 1,899,000
------------- -------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 4,324,000 $ 4,684,000
============= ============
</TABLE>
See notes to consolidated condensed financial statements
3
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PIEDMONT MINING COMPANY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
Three Months Ended
March 31,
----------------------------
1996 1995
<S> <C> <C>
NET SALES $ -0- $ -0-
COST OF SALES:
Depreciation expense 2,000 2,000
Haile Mining Venture expenses 124,000 141,000
Amortization of deferred gain (124,000) (141,000)
---------- ----------
2,000 2,000
---------- ----------
GROSS LOSS FROM OPERATIONS 2,000 2,000
OTHER (INCOME) EXPENSES:
General and administrative 168,000 141,000
Exploration 2,000 5,000
Professional fees 132,000 55,000
Interest and other, net (7,000) 23,000
Loss (Gain) on sale of stock (35,000) 94,000
Brokers fees and commissions 1,000 31,000
---------- ----------
261,000 349,000
---------- ----------
LOSS BEFORE INCOME TAXES 263,000 351,000
Income tax provision (benefit) 45,000 (62,000)
---------- ----------
NET LOSS $ 308,000 $ 289,000
========== ==========
NET LOSS PER COMMON SHARE $ .02 $ .02
========== ==========
CASH DIVIDENDS PER SHARE None None
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 15,043,869 15,043,869
========== ==========
</TABLE>
See notes to consolidated condensed financial statements.
4
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PIEDMONT MINING COMPANY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------
1996 1995
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (308,000) $ (289,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 11,000 7,000
Amortization of deferred gain (124,000) (141,000)
Deferred income tax (benefit) expense 45,000 (77,000)
(Gain) Loss on sale of assets (35,000) 91,000
Changes in operating assets and liabilities:
Increase (decrease) in accounts payable
and accrued expenses 141,000 9,000
Other -0- (4,000)
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (270,000) (404,000)
----------- -----------
INVESTING ACTIVITIES
Proceeds from sales of land, property and equipment -0- 3,000
Proceeds from sales of Amax Stock 95,000 2,597,000
------------ ----------
NET CASH PROVIDED BY INVESTING ACTIVITIES 95,000 2,600,000
----------- -----------
FINANCING ACTIVITIES
Payments on short-term debt -0- (2,197,000)
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES -0- (2,197,000)
----------- -----------
(DECREASE) IN CASH AND CASH EQUIVALENTS (175,000) (1,000)
Cash and Cash equivalents at beginning of period 782,000 91,000
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 607,000 $ 90,000
=========== ===========
</TABLE>
See notes to consolidated condensed financial statements.
5
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PIEDMONT MINING COMPANY, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1996
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. The consolidated condensed financial
statements include the accounts of the Registrant and its wholly-owned
subsidiaries, Kershaw Gold Company, Inc. (formerly Mineral Mining Company,
Inc.) and Piedmont Gold Company, Inc. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included. Certain reclassifications of prior
year amounts have been made to conform to current year presentation. Operating
results for the three month period ended March 31, 1996 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1996. For further information, refer to the financial statements and footnotes
thereto included in the Registrant's audited consolidated financial statements
on Form 10-KSB for the year ended December 31, 1995.
NOTE B - HAILE MINING VENTURE
On March 15, 1991, the Registrant entered into an option and earn-in agreement
with Amax Gold Exploration, Inc. (AGEI), a wholly-owned subsidiary of Amax Gold
Inc. (AGI), pursuant to which AGI acquired an option to purchase a 62.5%
interest in the Registrant's Haile Property located in South Carolina.
Pursuant to this agreement and as part of the earn-in conditions, AGEI paid the
Registrant $1,000,000 in cash; assumed the Registrant's obligations to make
payments on its notes to MMC Holding, Inc. and its sole shareholder through May
1, 1992 (a total of $1,072,000); provided financial support for a $750,000
reclamation bond increase; agreed to fund all exploration costs during the
option period and prepared at its sole cost a preliminary feasibility study for
the Haile Property which was delivered to the Registrant in December, 1991.
On May 1, 1992, AGI through its wholly-owned subsidiary, Lancaster Mining
Company, Inc., exercised its option and acquired a 62.5% undivided interest in
the Registrant's Haile Property. Upon the exercise of the option, the
Registrant received $1,750,000 in cash and 1,000,000 unregistered shares of
AGI's common stock (AGI Common Stock), of which the Registrant has 240,900
shares remaining at March 31, 1996. The closing price of AGI Common Stock on
the New York Stock Exchange was $6.875 on March 31, 1996.
Pursuant to the terms of the option and earn-in agreement, Kershaw Gold
Company, Inc. and Lancaster Mining Company, Inc. formed the Haile Mining
Venture (the Venture) to further explore, evaluate and, if warranted, develop
and operate a gold mine at the Haile Property. Lancaster Mining Company, Inc.
owns a 62.5% undivided interest and Kershaw Gold Company, Inc. owns a 37.5%
undivided interest in the Venture's assets and liabilities. Costs of the
Venture have been borne by each party based on their respective interests, and
the ultimate gold production by the Venture, if any, will be taken by the
parties in kind.
6
<PAGE> 7
In contemplation of the formation of the Venture described above, the
Registrant suspended its mining and hauling operations in August 1991. On June
30, 1992, leaching and recovery of gold ceased for the Registrant's account and
commenced for the account of the Venture.
The excess of the consideration received by the Registrant from AGI over the
carrying value of the Haile assets sold and liabilities assumed has been
recorded as a deferred gain in the accompanying consolidated balance sheet
because the Registrant had intended to fund its share of the costs of the
Venture at the Haile Property.
The Venture agreement between Kershaw Gold Company, Inc. and Lancaster Mining
Company, Inc. provided that the Venture participants jointly decide whether to
commence production at the Haile Property. Until a production decision is
made, the Registrant is charging to expense all of its share of the Venture's
costs and expenses.
The 1994 program and budget called for total Venture expenditures of
approximately $6,300,000, including $1,900,000 for additional drilling and
$150,000 for completion of a bankable feasibility study. However, no further
drilling was conducted in 1994, the bankable feasibility study has not yet been
produced, and actual Venture expenditures for 1994 were approximately
$2,415,000. In September 1994, the Registrant was advised by AGI that AGI had
decided to pursue the sale of its interest in the Venture.
The 1995 program and budget included total Venture expenditures of
approximately $1,010,000, or which the Registrant's 37.5% share was
approximately $378,750. The 1996 program and budget calls for total Venture
expenditures of approximately $1,080,000, of which the Registrant's 37.5% share
is approximately $405,000.
The Registrant is amortizing the deferred gain to income in amounts equal to
the sum of the Registrant's share of the Venture's costs and expenses and the
Registrant's other direct costs of participation in the Venture. The
amortization recorded was approximately $124,000 relating to costs incurred
during the three month period ended March 31, 1996. However, as discussed in
Note C, no cash calls have been paid by the Registrant since February 1995.
On March 29, 1995, the Registrant filed a lawsuit in South Carolina against AGI
and certain of its affiliates, claiming, among other things, that AGI's failure
to implement the 1994 program and budget was in breach of its obligations under
the Venture Agreement and Management Agreement for the Venture, and seeking
damages. The Registrant intends to vigorously pursue its claims. (See Part II,
Item 1 -- Legal Proceedings)
The failure of AGI to implement the 1994 work plan and budget, the decision by
AGI to pursue the sale of its interest in the Venture, and the pending
litigation between the Registrant and AGI are expected to further delay a
decision whether to commence production at the Haile property. Preliminary
estimates of the total costs of developing and commencing operations, based
upon the Preliminary Feasibility Study prepared by AGI in December 1991
pursuant to the Option and Earn-In Agreement, ranged up to approximately
$80,000,000, of which the Registrant's 37.5% share could range up to
approximately $30,000,000.
NOTE C - ACCRUED VENTURE COSTS
In February 1995, the Registrant advised AGI of its position that AGI was in
breach of the Haile Mining Venture Agreement and Management Agreement. In
March 1995, the Registrant further advised AGI of its position that it was not
obligated to continue
7
<PAGE> 8
to pay the monthly cash calls for the Venture. Subsequent to the filing of the
lawsuit against AGI described in Note B, the Registrant, through its counsel,
again advised AGI of its position that it is not required to and does not
intend to pay any further cash calls until the litigation is resolved.
The cash calls for March 1995 through March 1996 are reflected as accrued
venture costs on the Registrant's balance sheet at March 31, 1996 and are
included in the Haile Mining Venture expenses and offset by the corresponding
amortization of deferred gain in the Registrant's statement of operations for
the three months ended March 31, 1996. However, the Registrant has not paid
such cash calls and maintains its position that it is not obligated to make
such payments.
NOTE D - INVESTMENT IN AMAX GOLD COMMON STOCK
Under Statement of Financial Accounting Standards No. 115, Accounting for
Certain Investments in Debt and Equity Securities, ("FAS 115"), the Registrant
records its investment in AGI common shares at fair value, with unrealized
gains and losses reported in a separate component of shareholders' equity.
In January 1995, the Registrant began selling shares of the AGI Common Stock on
the open market. On February 27, 1995 the Registrant paid AGI $1,248,000,
representing the entire balance of an outstanding loan from AGI, from the
proceeds of the sale of a portion of the shares of AGI Common Stock held by the
Registrant. In addition, the Registrant repaid a brokers' loan in the first
quarter of 1995 with $949,000 of such proceeds. During the first quarter of
1996 the Registrant sold 11,500 shares of the AGI Common Stock resulting in a
gain of $35,000. At March 31, 1996, the Registrant held 240,900 shares of the
AGI Common Stock. The closing price of AGI's Common Stock on the New York
Stock Exchange on March 31, 1996 was $6.875 per share.
The Registrant has substantial deferred tax assets relating principally to net
operating loss carryforwards which are available to offset taxable income
generated upon the future disposition of the AGI shares. Based on the
Registrant's evaluation of the realizability of its deferred tax assets, the
Registrant has recorded a valuation allowance to reduce deferred tax assets to
an amount equal to its deferred tax liabilities. As of March 31, 1996, a
deferred income tax liability relating to the unrealized gain on securities
available-for-sale, in the amount of approximately $152,000, has been recorded
as a reduction in the unrealized gain. This deferred tax liability decreased
by $45,000 during the quarter ending March 31, 1996. Under Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes ("FAS
109"), the decrease in this deferred income tax liability resulted in a
corresponding $45,000 increase in the Registrant's valuation allowance against
deferred tax assets. In accordance with FAS 109, the tax expense relating to
the increase of the valuation allowance has been recorded in the statement of
operations. In the event that the unrealized gain on investment securities
decreases in the future, the Registrant may be required to increase the
valuation allowance through a provision for income taxes.
NOTE E - CONTINGENCIES
Pursuant to the Option and Earn-In Agreement, the Venture Agreement between the
subsidiaries of the Registrant and AGI that are the Venture participants, and
certain related agreements, the Registrant and its subsidiary have agreed to
indemnify AGI and its affiliates from all environmental and other liabilities
arising from matters occurring or existing at the Haile Property prior to March
15, 1991, or arising from acts, omissions and operations of the Registrant and
its subsidiary from March 15, 1991 to July 1, 1992 (the date of formation of
the Venture ).
8
<PAGE> 9
Venture expenditures incurred from its formation through December 31, 1995
total approximately $11,505,000 of which the Registrant has paid its 37.5%
share through February 1995. AGI has identified approximately $2,198,000 of
these Venture expenditures through March 31, 1996 ($290,000 for the second half
of 1992, $681,000 for 1993, $674,000 in 1994, $488,000 for 1995 and $65,000 for
the first three months of 1996) that it now claims are subject to such
indemnification provisions and should be reallocated 100% to the Registrant.
The Registrant has paid its 37.5% share of such costs through December 31, 1994
(which total approximately $617,000), but has not paid the remaining 62.5% of
such costs through December 31, 1994. Furthermore, the Registrant has not paid
any of these costs since January 1995 due to the pending litigation. The
Registrant has disputed such cost reallocation, and the total amount claimed by
AGI through March 31, 1996 is approximately $1,581,000 and is increasing every
month. A substantial part of such costs relate to ongoing water treatment and
property maintenance at the Haile Mine property, as well as certain reclamation
costs. AGI has also taken the position that the Registrant will be responsible
for 100% of similar ongoing expenses in the future. The Venture's financial
statements do not reflect the amount of such costs as Venture expenditures.
The Registrant has disputed the cost reallocation asserted by AGI and
arbitration proceedings were commenced by AGI in May 1995. On March 5, 1996 an
arbitration panel of the American Arbitration Association rendered an award in
connection with the Registrant's dispute with AGI over such cost reallocation.
The award calls for the Registrant to pay approximately $1,370,000 of the
disputed expenses to a subsidiary of AGI. In addition, approximately $33,000
administrative expenses are to be borne by the Registrant. The Registrant has
filed a motion to stay the confirmation proceeding and has also filed a cross
motion to vacate the arbitration award. See Part II, Item 1 -- Legal
Proceedings. The award has been accrued as of December 31, 1995 and has been
fully offset by amortization of the deferred gain in the statement of
operations for the year ended December 31, 1995.
The Registrant has not funded its share of the Venture's expenditures since
February 1995 as a result of litigation commenced against AGI in March 1995,
but such costs have been accrued. AGI has indicated that it intends to
activate the dilution of interest provisions of the Venture Agreement as a
result of the Registrant's failure to pay its share of Venture expenditures
since March 1995. Dilution of the Registrant's interest in the Venture, if
any, would result in a proportionate adjustment to the accounts in the
Registrant's balance sheet relating to the Venture.
On March 29, 1995, the Registrant filed a lawsuit in South Carolina against AGI
claiming, among other things, that AGI's failure to implement the approved 1994
Program and Budget for the Venture was in breach of its obligations under the
Venture Agreement and Management Agreement for the Venture, and seeking actual
and punitive damages. Discovery is to be completed on or before June 15, 1996
and trial is scheduled to commence with the term of the Court beginning on July
8, 1996. See Part II, Item 1 -- Legal Proceedings. No amounts have been
recorded in the accompanying financial statements relating to this gain
contingency.
9
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PIEDMONT MINING COMPANY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
General
The Registrant's principal operations prior to mid-1992, other than its
exploration activities, were mining and production of gold at the Haile
Property, which accounted for most of the Registrant's revenues to date. On
March 15, 1991, the Registrant entered into an Option and Earn-In Agreement
with Amax Gold Inc. (AGI) pursuant to which AGI was granted an option to
acquire a 62.5% undivided interest in the Haile Property. In connection with
its entering into the Option and Earn-In Agreement and AGI's exploration
activities at the Haile Property during the option period thereunder, the
Registrant began to phase out its shallow, open-pit mining operations at the
Haile Property in March 1991 and suspended mining and hauling in August 1991.
AGI exercised its option on May 1, 1992, and the Registrant and AGI formed the
Venture on July 1, 1992 to further explore, evaluate, and, if warranted,
develop and operate a large-scale mining operation at the Haile Property. The
Registrant has an undivided 37.5% interest in the Venture's assets,
liabilities, costs and revenues. Recovery and production of gold from the
leaching of ore previously mined continued until July 1, 1992 for the account
of the Registrant until the formation of the Venture on July 1, 1992, after
which AGI commenced taking its 62.5% of the gold production.
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1995.
There were no sales for the three months ended March 31, 1996 due to the
suspension of mining in 1991 and the completion in 1992 of recoveries of gold
from leaching of ore previously mined.
There were no mine operating expenses for the three months ended March 31,
1996 due to the suspension of mining in 1991 and production in 1992.
Depreciation expense remained unchanged at $2,000 because machinery and
equipment purchases were offset by fixed assets being fully depreciated.
General and administrative expenses increased 19% principally due to
reduced office personnel expenses offset by increased franchise and intangible
tax payments.
Professional fees increased 140% principally due to the increase in
required legal expense primarily as a result of the pending litigation against
AGI.
Exploration expenses declined 60% to $2,000 due to a decline in the
Registrant's North Carolina property lease expense.
Interest and other, net was $7,000 of interest income for the first three
months of 1996 compared to $23,000 of interest expense for the first three
months of 1995. This was a result of no borrowings in 1996, while earning
interest income on cash investments.
The Registrant recorded a gain of approximately $35,000 on AGI stock sold
during the first three months of 1996, compared to a loss of $94,000 in the
prior year quarter.
10
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PIEDMONT MINING COMPANY, INC.
THREE MONTHS COMPARISON (cont.)
As a result of the Registrant's reduced AGI stock sales for the three
months ending March 31, 1996, brokers fees and commissions were $1,000 compared
to $31,000 in 1995.
The Registrant has been amortizing the deferred gain, recorded as a result
of the AGI option exercise, to income in amounts equal to the sum of the
Registrant's share of the Venture's costs and expenses and the Registrant's
other direct costs of participation in the Venture. Such costs and related
amortization amounted to $124,000 for the three months ended March 31, 1996.
This amount is 12% lower than the three months ended March 31, 1995 due to the
lack of exploration expenditures and the maintenance status of the property.
The Registrant recorded a deferred income tax provision of $45,000 for the
three months ended March 31, 1996 relating principally to a increase in the
valuation allowance against deferred income tax assets. This increase was
directly attributable to accounting for the unrealized gain on the AGI Common
Stock as further discussed in Note D. The offsetting tax benefit relating to a
reduction of the deferred tax liability associated with the unrealized gain on
the AGI Common Stock is recorded as an adjustment to shareholder's equity.
The Registrant's net loss of $308,000 in the first quarter ended March 31,
1996 was due to the factors set forth above.
FINANCIAL CONDITION
The Registrant's financial condition and liquidity continued to decline in
the first three months of 1996 due primarily to the accrual of its 37.5% share
of the costs and expenses of the Venture and the funding of various corporate
and legal costs without any offsetting revenues. In addition, the Registrant
has accrued effective December 31, 1995 $1,370,000 for the arbitration award
entered against it in March 1996 as discussed in Part II, Item 1 -- Legal
Proceedings, and Note E to the accompanying financial statements. Working
capital declined to $169,000 at March 31, 1996, compared with $658,000 at the
end of 1995.
The Registrant's principal source of liquidity since the beginning of 1995
has been the sale of some of the shares of AGI Common Stock it had acquired
upon AGI's exercise of its option with respect to the Haile Property which the
Registrant began to liquidate in January of 1995. Proceeds from the sale of
such shares were also used to repay previous borrowings against such shares
made in 1993 and 1994. At March 31, 1996, the Registrant held 240,900 shares of
AGI Common Stock and had approximately $607,000 in cash and cash equivalents.
Further sales of or margin loans on the remaining shares of the AGI Common
Stock held by the Registrant may be its only source of additional cash for the
foreseeable future. Thus, further declines in the market price of the AGI
Common Stock could severely affect the Registrant's liquidity. The closing
price of AGI Common Stock on the New York Stock Exchange on March 31, 1996 was
$6.875.
The continued deterioration in the Registrant's cash position during the
first three months of 1996 and increasing litigation costs have resulted in
uncertainty whether the Registrant would be able to fund its ongoing corporate
and legal expenses through the end of 1996 if the Registrant is required to pay
the $1,370,000 arbitration award in favor of AGI before there is a satisfactory
resolution of the Registrant's claims against AGI in its pending litigation.
(See Part II, Item 1 - Legal
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PIEDMONT MINING COMPANY, INC.
FINANCIAL CONDITION (CONT.)
Proceedings.) The Registrant is vigorously pursuing its motions to stay or
vacate the arbitration award, but on April 26, 1996 the Magistrate Judge to
whom the Registrant's motions were referred entered a report to the Court
recommending that the motions be denied and that judgement be entered against
the Registrant on the arbitration award. The Registrant has filed objections
and exceptions to the Magistrate Judge's report and has requested oral
argument, but a ruling by the Court could be imminent. If a judgement is
entered on the arbitration award prior to resolution of the Registrant's claims
against AGI and the Registrant determines that enforcement of such judgement
would impair its ability to prosecute its claims against AGI, it may be
necessary for the Registrant to seek protection under the Federal Bankruptcy
Code to stay enforcement of the award.
Even if the Registrant is not ultimately required to pay the arbitration
award to AGI or the enforcement of the arbitration award is stayed pending
resolution of the Registrant's claims against AGI, the Registrant will need
additional financing if the Haile Mining Venture decides to develop and
commence mining operations at the Haile Property pursuant to the Venture
Agreement, or if prior to a production decision the Venture incurs
substantially more expenditures for which the Registrant is responsible.
Additional financing for such purposes could be sought through the issuance of
additional shares of the Registrant's Common Stock or other equity securities,
through debt financing, or through various arrangements (including joint
ventures or mergers) with third parties. However, the Registrant currently has
no commitments for any such additional financing, and there is no assurance
that the Registrant could obtain any such additional financing if and when
needed.
If a production decision is made by the Haile Mining Venture, the
Registrant's share of the Venture's total costs of developing and commencing
mining operations at the Haile Property, as estimated in the Preliminary
Feasibility Study prepared in December 1991 by AGI pursuant to the Option and
Earn-In Agreement, could be as great as $30,000,000, depending upon the nature,
size and scope of the operations and other variables, which have not yet been
determined. Although the Registrant and AGI agreed in their Venture Agreement
to seek project financing for the development of the Haile Property if a
production decision is made, there is no assurance that project financing will
be available and the Registrant may be required to seek its own separate
financing.
12
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PIEDMONT MINING COMPANY, INC.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On March 29, 1995, the Registrant and its wholly-owned subsidiary, Kershaw
Gold Company, Inc., as plaintiffs, filed a complaint in the Court of Common
Pleas for Lancaster County, South Carolina (Case No. 95-155) against Amax Gold
Inc., Lancaster Mining Company, Inc. and Haile Mining Company, Inc., alleging
breach of contract by defendants Amax Gold Inc., Lancaster Mining Company, Inc.
and Haile Mining Company, Inc., and tortious interference with contractual
rights by defendant Amax Gold Inc. The complaint asked for actual and punitive
damages as the Court and jury shall determine. A trial by jury has been
demanded.
A hearing on pending motions in the state court proceeding was held on
October 5, 1995. On November 2, 1995, the court issued an order dismissing the
claims of Piedmont Mining Company, Inc. (but not those of Kershaw Gold Company)
against the defendants, and dismissing both plaintiffs' claims for breach of
contract against Amax Gold Inc. (but not Kershaw Gold Company's claims against
Lancaster Mining Company, Inc. and Haile Mining Company, Inc.), on the grounds
that only the subsidiaries of the Registrant and of Amax Gold Inc. are parties
to the contract in question. The order also stayed Kershaw Gold Company's
claims for breach of contract against the two Amax Gold Inc. subsidiaries
pending a determination of arbitrability by the arbitrators. Kershaw Gold
Company's claim against Amax Gold Inc. for tortious interference with contract
(including the Venture Agreement) was allowed to proceed. Amax Gold Inc.'s
motion for a more definite statement of the tortious interference claim was
granted. Discovery on the tortious interference claim was also authorized.
The Registrant intends to vigorously prosecute its claims against Amax Gold
Inc. and the two subsidiaries. The Registrant timely moved for reconsideration
of the court's November 2, 1995 order. To date no hearing or ruling has
occurred with respect to such motion.
Following the court's November 2, 1995, order, the defendant, Amax Gold
Inc., removed the claim against it by Kershaw to the Federal District Court for
the District of South Carolina. Kershaw filed its amended complaint in this
action on January 29, 1996 alleging tortious interference and civil conspiracy.
Discovery is proceeding and the court has issued a scheduling order that the
case may be called for trial during the term of court beginning July 8, 1996.
On May 24, 1995, the defendant filed a demand for arbitration with the
American Arbitration Association alleging a breach by plaintiffs of obligations
under the Venture Agreement. The defendant sought to recover costs incurred,
and has taken the position that "future costs are not waived, but are
specifically preserved." The Registrant has taken the position before both the
court and the American Arbitration Association that the dispute is not
arbitrable under the terms of the Venture Agreement, and objected to the
arbitration proceedings. Nevertheless, the arbitration proceedings were
conducted in early 1996 before an arbitration panel of the American Arbitration
Association.
On March 5, 1996, the arbitration panel rendered an award calling for the
Registrant to pay approximately $1,370,000 of the disputed expenses to a
subsidiary of AGI. According to the award, the administrative and arbitrators'
fees and expenses, totalling approximately $66,000, are to be borne equally by
the parties. On or about March 6, 1996, Lancaster moved in the Federal
District Court to have the order of the arbitrators confirmed in order to make
such award a judgment of the
13
<PAGE> 14
court. On or about April 4, 1996, the Registrant filed a motion in the Federal
District Court to stay the confirmation proceeding and a cross-motion to vacate
the arbitration award. The Registrant is vigorously pursuing its motions to
stay or vacate the arbitration award, but on April 26, 1996 the Magistrate
Judge to whom the Registrant's motions were referred entered a report to the
Court recommending that the motions be denied and that judgement be entered
against the Registrant on the arbitration award. The Registrant has filed
objections and exceptions to the Magistrate Judge's report and has requested
oral argument, but a ruling by the Court could be imminent. If a judgement is
entered on the arbitration award prior to resolution of the Registrant's claims
against AGI and the Registrant determines that enforcement of such judgement
would impair its ability ton continue its operations and to prosecute its
claims against AGI, it may be necessary for the Registrant to seek protection
under the Federal Bankruptcy Code to stay enforcement of the award.
The expenses that are the subject of the arbitration award are reflected
as current liabilities on the Registrant's financial statements.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27 Financial Data Schedule (filed in electronic format only)
(b) Reports on Form 8-K No reports on Form 8-K were filed during
the three months ended March 31, 1996.
14
<PAGE> 15
PIEDMONT MINING COMPANY, INC.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PIEDMONT MINING COMPANY, INC.
Date: May 14, 1996 By /s/ Robert M. Shields, Jr.
----------------------------------
Robert M. Shields, Jr.
Chairman and
Chief Executive Officer
Date: May 14, 1996 By /s/ Thomas L. Ross, III
----------------------------------
Thomas L. Ross, III
Secretary and Controller
(Chief Accounting Officer)
15
<PAGE> 16
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
EXHIBITS
Item 6
FORM 10-QSB
QUARTERLY REPORT
For the quarter ended Commission File Number
March 31, 1996 0-16436
PIEDMONT MINING COMPANY, INC.
EXHIBIT INDEX
Sequentially
Exhibit Numbered
Number Exhibit Description Page
- ------ ------------------- ------------
27 Financial Data Schedule (filed in electronic N/A
format only)
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S QUARTERLY REPORT ON FORM 10-QSB FOR THE QUARTER ENDED MARCH 31,
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-QSB.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 607,000
<SECURITIES> 1,656,000
<RECEIVABLES> 28,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,291,000
<PP&E> 275,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,324,000
<CURRENT-LIABILITIES> 2,122,000
<BONDS> 0
11,157,00
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,324,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 2,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (7,000)
<INCOME-PRETAX> (263,000)
<INCOME-TAX> (45,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (308,000)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
