<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
-------------
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
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.)
4101-G 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--17,192,948 SHARES OUTSTANDING
AS OF JUNE 30, 1997
Transitional Small Business Disclosure Format (check one)
Yes No X
--- ---
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INDEX
PIEDMONT MINING COMPANY, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements. Page
Consolidated Condensed Balance Sheets--June 30, 1997
(unaudited) and December 31, 1996 3
Consolidated Condensed Statements of Operations (unaudited)--
Three months ended June 30, 1997 and June 30, 1996 4
Six months ended June 30, 1997 and June 30,1996
Consolidated Condensed Statements of Cash Flows 5
(unaudited)--Six months ended June 30, 1997 and
June 30, 1996
Notes to Consolidated Condensed Financial Statements 6
(unaudited)-June 30, 1997
Item 2. Management's Discussion and Analysis or Plan of Operation 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 14
Item 4. Submission of matters to a Vote of securities holders 14
Item 6. Exhibits and Reports on Form 8-K. 15
SIGNATURES 16
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PIEDMONT MINING COMPANY, INC.
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
At At
June 30 December 31
CONSOLIDATED CONDENSED BALANCE SHEETS 1997 1996
------------ ------------
<S> <C> <C>
ASSETS (unaudited)
CURRENT ASSETS
Cash and cash equivalents (including $0 and
$0 relating to the Haile Mining Venture) $ 366,000 $ 700,000
Prepaid expenses 4,000 1,000
------------ ------------
TOTAL CURRENT ASSETS 370,000 701,000
------------ ------------
PROPERTY AND EQUIPMENT (including $210,000
and $227,000 relating to the Haile Mining Venture) 245,000 263,000
OTHER ASSETS
Deferred costs (including $1,536,000 relating to the
Haile Mining Venture) net of accumulated amortization
of $3,377,000 1,754,000 1,754,000
Other 2,000 3,000
------------ ------------
TOTAL OTHER ASSETS 1,756,000 1,757,000
------------ ------------
TOTAL ASSETS $ 2,371,000 $ 2,721,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable -0- $ 290,000
Accounts payable (including $305,000 and
$246,000 relating to Haile Mining Venture) 361,000 267,000
Accrued venture costs (Note C) 966,000 783,000
Accrued salaries and wages 6,000 4,000
------------ ------------
TOTAL CURRENT LIABILITIES 1,333,000 1,344,000
------------ ------------
ACCRUED RECLAMATION COSTS 125,000 125,000
------------ ------------
DEFERRED GAIN 7,019,000 7,019,000
Less accumulated amortization 7,019,000 6,862,000
------------ ------------
-0- 157,000
UNCERTAINTIES AND CONTINGENCIES
(Notes B, C AND E)
SHAREHOLDERS' EQUITY
Common Stock 12,015,000 11,717,000
Contributed capital 317,000 317,000
Accumulated deficit (11,419,000) (10,939,000)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 913,000 1,095,000
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 2,371,000 $ 2,721,000
============ ============
</TABLE>
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PIEDMONT MINING COMPANY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $ -0- $ -0- $ -0- $ -0-
COST OF SALES
Depreciation expense -0- 3,000 1,000 5,000
Haile Mining Venture expenses (Note B,C) 163,000 202,000 259,000 333,000
Amortization-deferred gain (Notes B,C) (61,000) (202,000) (157,000) (333,000)
----------- ----------- ----------- -----------
102,000 3,000 103,000 5,000
GROSS LOSS FROM OPERATIONS 102,000 3,000 103,000 5,000
----------- ----------- ----------- -----------
OTHER (INCOME) EXPENSES
General and administrative 115,000 142,000 215,000 310,000
Exploration -0- 2,000 2,000 4,000
Professional fees 116,000 185,000 164,000 317,000
Interest and other, net 3,000 (6,000) (4,000) (13,000)
Gain on sale of stock -0- (68,000) -0- (104,000)
Brokers fees and commissions -0- 3,000 -0- 4,000
----------- ----------- ----------- -----------
234,000 258,000 377,000 518,000
----------- ----------- ----------- -----------
LOSS BEFORE INCOME TAXES 336,000 261,000 480,000 523,000
Income tax provision -0- 134,000 -0- 178,000
----------- ----------- ----------- -----------
NET LOSS 336,000 395,000 480,000 701,000
=========== =========== =========== ===========
NET LOSS PER COMMON SHARE 0.02 0.03 0.03 0.05
=========== =========== =========== ===========
CASH DIVIDENDS PER SHARE None None None None
WEIGHTED AVERAGE NUMBER OF
COMMON SHARE OUTSTANDING 16,452,101 15,043,869 16,448,008 15,043,869
=========== =========== =========== ===========
</TABLE>
See notes to consolidated condensed financial statements.
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PIEDMONT MINING COMPANY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30
-----------------------------
1997 1996
<S> <C> <C>
OPERATING ACTIVITIES
Net Loss $(480,000) $(701,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 18,000 20,000
Amortization of deferred gain (157,000) (333,000)
Deferred income tax (benefit) expense -0- 178,000
(Gain) Loss on sale of assets -0- (104,000)
Changes in operating assets and liabilities:
Decrease in Note Payable (290,000) -0-
Increase (decrease) in accounts payable
and accrued expenses 279,000 282,000
Other (2,000) (4,000)
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (632,000) (662,000)
--------- ---------
INVESTING ACTIVITIES
Proceeds from sales of land, property and equipment -0- -0-
Proceeds from sales of Amax Gold Inc. stock -0- 416,000
Proceeds from issuance of common stock 298,000 -0-
--------- ---------
NET CASH PROVIDED BY INVESTING ACTIVITIES 298,000 416,000
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (334,000) (246,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 700,000 782,000
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 366,000 $ 536,000
========= =========
</TABLE>
See notes to consolidated condensed financial statements.
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PIEDMONT MINING COMPANY, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS (UNAUDITED)
June 30, 1997
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 six-month period
ended June 30, 1997 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1997. 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, 1996.
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), all of which had been sold by the Registrant by
December 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
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party based on their respective interests, and the ultimate gold production by
the Venture, if any, will be taken by the parties in kind.
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 accruing 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
provided to the Registrant, 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.
Total Venture expenditures for 1996 were $1,099,000, of which 37.5% would be
approximately $412,000. The 1997 program and budget calls for total Venture
expenditures of approximately $1,549,000, of which 37.5% would be approximately
$581,000.
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 $157,000 relating to costs incurred
during the six-month period ended June 30, 1997. 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
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Agreement, ranged up to approximately $80,000,000, of which the Registrant's
37.5% share would have been 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 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 June 1997 are reflected as accrued venture
costs on the Registrant's balance sheet at June 30, 1997 and December 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 and six months ended June 30, 1997 and June 30, 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 Stock 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 loan balance plus accrued interest owed to 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 year ended December
31, 1996, the Registrant sold all of its remaining shares of the AGI Common
Stock resulting in a net gain of $15,000.
The Registrant has substantial deferred tax assets relating principally to net
operating loss carryforwards which were applied to offset taxable income
generated upon the disposition of the AGI shares. Based on the Registrant's
evaluation of the realizability of its deferred tax assets, the Registrant
recorded a valuation allowance to reduce deferred tax assets to an amount equal
to its deferred tax liability.
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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 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).
Venture expenditures incurred from its formation through June 30, 1997 totaled
approximately $13,250,000 of which the Registrant has paid 37.5% through
February 1995. AGI has identified approximately $2,575,000 of these Venture
expenditures through June 30, 1997 ($290,000 for the second half of 1992,
$681,000 for 1993, $674,000 in 1994, $488,000 for 1995, $279,000 for 1996 and
$163,000 for the first six months of 1997) that it now claims are subject to
such indemnification provisions and should be reallocated 100% to the
Registrant. The Registrant has paid 37.5% of such costs through December 31,
1994 (which totaled approximately $617,000). 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. The Venture's financial
statements do not reflect the amount of such costs as Venture expenditures.
The Registrant 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. Pursuant to
the award, the Registrant paid approximately $1,370,000 to a subsidiary of AGI.
In addition, approximately $33,000 in administrative expenses were borne by the
Registrant. The Registrant believes that it is not responsible for any cost
allocations in excess of the $1,370,000 that was the subject of the arbitration
award. However, AGI has taken the position that the Registrant should be
responsible for 100% of similar ongoing expenses in the future.
The Registrant has not funded its share of the Venture's expenditures since
February 1995 as a result of the 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 on 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. See Part II, Item 1 -- Legal Proceedings. No amounts have
been recorded in the accompanying financial statements relating to this gain
contingency.
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PIEDMONT MINING COMPANY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
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 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 JUNE 30, 1997 COMPARED TO THE THREE MONTHS ENDED
JUNE 30, 1996.
There were no sales or mine operating expenses for the three-month
periods ended June 30, 1997 and 1996 due to the suspension of mining in 1991 and
the completion in 1992 of recoveries of gold from leaching of ore previously
mined.
Depreciation expense was less than $1,000 and because of rounding in
thousands it is shown as zero for this quarter.
General and administrative expenses decreased by 19.0% for the
three-month period ended June 30,1997 due to reduced office and salary expenses.
Professional fees decreased 37.3% principally due to the decrease in
required legal and consulting services related to the litigation against AGI.
There were no Exploration expenses because no lease payments were due
for the Registrant's North Carolina properties.
Interest and other, net was $(3,000) for the three-month period ending
June 30,1997 compared to $6,000 for the three-month period ending June 30, 1996.
This was a result of interest expense on the $290,000 convertible notes payable
which more than offset interest income on invested cash.
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The Registrant recorded no gain or loss on the sale of AGI Common Stock
during the three-month period ending June 30, 1997, since all shares had been
sold by December 31,1996. For the three-month period ended June 30, 1996, the
Registrant recorded a gain of $68,000 on the sale of shares of AGI Common Stock.
For the three months ending June 30, 1997, there were no brokers', fees
and commissions compared to $3,000 for the same period in 1996.
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
37.5% of the Venture's costs and expenses and the Registrant's other direct
costs of participation in the Venture. For the three month period ending June
30,1997, all of the remaining $61,000 deferred gain was amortized against the
Venture costs and expenses of $163,000 The deferred gain amortization was 69.8%
lower than the three months ended June 30, 1996 while actual venture expenses
declined 19.3% against the same three month period in 1996.
The Registrant recorded no deferred income tax provision for the
three-months ended June 30, 1997, compared to a $134,000 income tax provision
for the three-month period ended June 30,1996.
The Registrant's net loss of $336,000 for the three-month period ended
June 30, 1997 was due to the factors set forth above.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1996.
There were no sales or mine operating expenses for the six-month
periods ended June 30, 1997 and 1996 due to the suspension of mining in 1991 and
the completion in 1992 of recoveries of gold from leaching of ore previously
mined.
Depreciation expense declined to $1,000 because there were no machinery
and equipment purchases to offset fixed assets being fully depreciated.
General and administrative expenses decreased by 30.7% for the
six-month period ended June 30,1997 due to reduced office and salary expenses.
Professional fees decreased 48.3% principally due to the decrease in
required legal and consulting services related to the litigation against AGI.
Exploration expenses declined by 50% because the Registrant dropped
several leased tracts around its North Carolina properties.
Interest and other, net decreased 69.2% for the six-month period ending
June 30,1997 compared to the six-month period ending June 30, 1996. This was a
result of interest expense from the $290,000 in notes payable borrowed in
December 1996 partially offsetting interest income on invested cash.
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The Registrant recorded no gain or loss on the sale of AGI Common Stock
during the six-month period ending June 30, 1997, since all shares had been sold
by December 31,1996. For the six-month period ended June 30, 1996, the
Registrant recorded a gain of $104,000 on the sale of shares of AGI Common
Stock.
For the six months ending June 30, 1997, there were no brokers' fees
and commissions compared to $4,000 for the same period in 1996.
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
37.5% of the Venture's costs and expenses and the Registrant's other direct
costs of participation in the Venture. For the six month period ending June
30,1997, all of the remaining $157,000 deferred gain was amortized against the
Venture costs and expenses of $259,000. The deferred gain amortization was 52.9%
lower than the six months ended June 30, 1996 while actual venture expenses
declined 22.2% against the same six month period in 1996.
The Registrant recorded no deferred income tax provision for the
three-months ended June 30, 1997, compared to a $178,000 income tax provision
for the six-month period ended June 30,1996.
The Registrant's net loss of $480,000 for the six-month period ended
June 30, 1997 was due to the factors set forth above.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition and liquidity continued to decline in
the first six months of 1997 due primarily to the accounting charge for 37.5% of
the costs and expenses of the Haile Mining Venture, and various corporate costs
without any offsetting revenues. The working capital deficit increased to
$(963,000) at June 30, 1997, compared with $(643,000) at the end of 1996.
The Company's principal source of liquidity during 1996 was from the
sale of all of the remaining shares of AGI Common Stock it had acquired upon
AGI's exercise of its option with respect to the Haile Property, which the
Company began to liquidate in January 1995. Proceeds from the sale of such
shares were also used to repay previous borrowings against such shares made in
1993 and 1994. In late 1996, the Company completed the sale of its remaining
shares of AGI Common Stock. The net proceeds from such sale were used to pay
most of the arbitration award. In addition, in December 1996, the Company
completed a sale of 1,400,000 shares of its Common Stock and issued $290,000 of
Notes convertible into Common Stock. The net proceeds from such sales were
approximately $850,000, a portion of which was used to pay the remainder of the
arbitration award. On June 30, 1997, the $290,000 in notes and $8,000 in accrued
interest were converted into approximately 745,000 shares of the Registrant's
Common Stock. At June 30, 1997, the Company had approximately $366,000 in cash
or cash equivalents.
The Company believes that its current cash position may provide
sufficient capital resources for its continued operations (including the costs
of pursuing the lawsuit against AGI) through the end of
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1997. However, additional financing will be required to develop and commence
mining operations at the Haile Property or if there is no favorable resolution
of the litigation during 1997. Additional financing for such purposes could be
sought through the issuance of additional shares of the Company's Common Stock
or other equity securities, through debt financing, or through various
arrangements (including joint ventures or mergers) with third parties. However,
the Company currently has no commitments for any such additional financing, and
there is no assurance that the Company could obtain any such additional
financing if and when needed.
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 should determine. A trial by jury was
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. were 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 these 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.
The civil conspiracy claim was later dismissed. Discovery is completed. On
August 19, 1996, Amax Gold filed a motion for summary judgement. A hearing on
this motion was held on November 25,1996 before a Magistrate Judge, who
recommended on January 17, 1997 that Amax Gold's motion for summary judgement
be denied. The Magistrate's recommendation was confirmed by the Federal
District Judge on June 26, 1997. The case has been scheduled for trial
beginning August 18, 1997.
13
<PAGE> 14
On May 24, 1995, Lancaster Mining Company, Inc. filed a demand for
arbitration with the American Arbitration Association alleging the breach by
plaintiffs of their obligations under the Venture Agreement. The defendant has
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 the
Registrant has 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, were to be borne equally by
the parties. In August 1996, the award was confirmed by the U.S. District Court
in South Carolina and judgement was entered on the award.
On September 9, 1996, the Registrant and its wholly-owned subsidiary,
Kershaw Gold Company, Inc., filed petitions for relief under Chapter 11 of the
U.S. Bankruptcy Code in the U. S. Bankruptcy Court for the Western District of
North Carolina. Such filings automatically stayed the enforcement of the
judgement on the arbitration award. After a hearing, the Bankruptcy Court
dismissed the petitions on October 30, 1996, thereby terminating the automatic
stay. Following dismissal of the bankruptcy proceedings, Lancaster Mining
Company, Inc. commenced proceedings to enforce its judgement. The Registrant
paid the judgement in full in December 1996.
Item 2. Changes in Securities
(a) Not applicable
(b) Not applicable
(c) In December 1996, the Registrant issued $290,000 principal amount
of Convertible Notes to five directors and an accredited investor.
The Convertible Notes matured June 30,1997 and were convertible
into shares of the Registrant's Common Stock at $.40 per share from
March 31, 1997 until maturity. The principal and interest on all
such notes were converted into shares of the Registrant's Common
Stock effective June 30, 1997, resulting in the issuance of an
aggregate of approximately 745,000 shares of the Registrant's
Common Stock. The issuance of the Convertible Notes and the
subsequent issuance of the Common Stock upon conversion of the
Convertible Notes were made pursuant to Rule 506 of Regulation D
under the Securities Act of 1933.
Item 4. Submission of matters to a Vote of Security Holders
At the Annual Meeting of Shareholders of the Registrant held on June
25, 1997, the shareholders approved (1) the election of Robert M. Shields, Jr.,
Earl M. Jones, William Feick, Jr., John W. Castles 3d, Joseph F. McDonald,
Christopher M.H. Jennings and Douglas D. Donald as
14
<PAGE> 15
directors; (2) amendments to the 1994 Nonqualified Stock Option Plan for
Non-Employee Directors in order to: (i) increase the number of shares of the
Corporation's Common Stock reserved for the issuance upon the exercise of
options granted under the 1994 Director Plan to 550,000; (ii) shorten the period
of service required of a non-employee director in order to be eligible to
receive automatic grants under the 1994 Director Plan to three months; and
(iii) authorize the Board of Directors, in its discretion, to grant options to a
Director who is not a regular employee of the Corporation as compensation for
and in consideration of his or her service initial election to the Board of
Directors. The following table sets forth the votes on such matters:
FOR AGAINST ABSTAIN
Election of Directors:
(by nominee)
Robert M. Shields 8,729,292 0 150,350
Earl M. Jones 8,729,292 0 150,350
William Feick, Jr. 8,714,292 0 165,350
John W. Castles 3d 8,730,292 0 149,350
Joseph F. McDonald 8,730,292 0 149,350
Christopher M. H. Jennings 8,730,292 0 149,350
Douglas D. Donald 8,728,292 0 151,350
Approval of Amendments to
the 1994 Nonqualified Stock
Option Plan for Non-Employee
Directors 8,616,146 181,786 81,710
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.80 First Amendment to Severance Payment Agreement by and between
the Registrant and Robert M. Shields Jr. dated as of February
28, 1997.
10.81 First Amendment to Severance Payment Agreement by and between
the Registrant and Earl M. Jones dated as of February 28,
1997.
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 June 30, 1997.
15
<PAGE> 16
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: August 14, 1997 By /s/ Robert M. Shields, Jr.
--------------------------
Robert M. Shields, Jr.
Chairman and Chief Executive Officer
16
<PAGE> 17
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
EXHIBITS
FORM 10-QSB
QUARTERLY REPORT
For the quarter ended Commission File Number
June 30, 1997 0-16436
PIEDMONT MINING COMPANY, INC.
EXHIBIT INDEX
Sequentially
Exhibit No Exhibit Description Numbered Page
---------- ------------------- -------------
10.80 First Amendment to Severance Payment
Agreement by and between the Registrant and
Robert M. Shields, Jr. dated as of February
28, 1997.
10.81 First Amendment to Severance Payment
Agreement by and between the Registrant and
Earl M. Jones dated as of February 28, 1997.
27 Financial Data Schedule (for SEC use only).
17
<PAGE> 1
EXHIBIT 10.80
FIRST AMENDMENT
to
SEVERANCE PAYMENT AGREEMENT
This FIRST AMENDMENT dated as of February 28, 1997 to the SEVERANCE
PAYMENT AGREEMENT dated as of March 1, 1992 (the "Severance Agreement"), by and
between PIEDMONT MINING COMPANY, INC., a Charlotte, North Carolina corporation
with its principal executive offices at Charlotte, North Carolina (the
"Company"), and Robert M. Shields, Jr., an individual residing at New York, New
York (the "Executive").
STATEMENT OF PURPOSE
The Executive is a valued key employee of the Company whose present and
future contributions to the success and growth of the Company are significant.
The Company believes that it is in the best interest of it and its shareholders
to amend the Severance Agreement to extend the term of the Severance Agreement.
NOW, THEREFORE, the Company and the Executive hereby agree as follows:
1. Extension of Agreement. The Company and the Executive hereby
acknowledge and agree that Section 3(b)(1) of the Severance Agreement is hereby
amended by changing the expiration date referenced in the first line of such
subsection to the tenth anniversary of the date of the Severance Agreement.
2. References. Each reference in the Severance Agreement to the terms
"this Agreement", "herein", "hereof", "hereunder" and other similar terms
referring to the Severance Agreement are hereby deemed to be a reference to the
Severance Agreement as previously amended as amended hereby.
3. Ratification; Confirmation. Except as amended hereby, all the terms
and conditions of the Severance Agreement shall remain in full force and effect,
and are hereby ratified and confirmed in all respects.
4. Counterparts. This First Amendment may be executed in any one or
more counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same agreement.
1
<PAGE> 2
IN WITNESS WHEREOF, the parties have caused this First Amendment to be
executed and delivered as of the day and year first above set forth.
PIEDMONT MINING COMPANY, INC.
[CORPORATE SEAL]
By: /s/ Earl M. Jones
---------------------
Name: Earl M. Jones
Title: President
/s/ Robert M. Shields, Jr.
--------------------------
Robert M. Shields, Jr.
2
<PAGE> 1
EXHIBIT 10.81
FIRST AMENDMENT
to
SEVERANCE PAYMENT AGREEMENT
This FIRST AMENDMENT dated as of February 28, 1997 to the SEVERANCE
PAYMENT AGREEMENT dated as of March 1, 1992 (the "Severance Agreement"), by and
between PIEDMONT MINING COMPANY, INC., a Charlotte, North Carolina corporation
with its principal executive offices at Charlotte, North Carolina (the
"Company"), and Earl M. Jones, an individual residing at Knoxville, Tennessee
(the "Executive").
STATEMENT OF PURPOSE
The Executive is a valued key employee of the Company whose present and
future contributions to the success and growth of the Company are significant.
The Company believes that it is in the best interest of it and its shareholders
to amend the Severance Agreement to extend the term of the Severance Agreement.
NOW, THEREFORE, the Company and the Executive hereby agree as follows:
1. Extension of Agreement. The Company and the Executive hereby
acknowledge and agree that Section 3(b)(1) of the Severance Agreement is hereby
amended by changing the expiration date referenced in the first line of such
subsection to the tenth anniversary of the date of the Severance Agreement.
2. References. Each reference in the Severance Agreement to the terms
"this Agreement", "herein", "hereof", "hereunder" and other similar terms
referring to the Severance Agreement are hereby deemed to be a reference to the
Severance Agreement as previously amended as amended hereby.
3. Ratification; Confirmation. Except as amended hereby, all the terms
and conditions of the Severance Agreement shall remain in full force and effect,
and are hereby ratified and confirmed in all respects.
4. Counterparts. This First Amendment may be executed in any one or
more counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same agreement.
1
<PAGE> 2
IN WITNESS WHEREOF, the parties have caused this First Amendment to be
executed and delivered as of the day and year first above set forth.
PIEDMONT MINING COMPANY, INC.
[CORPORATE SEAL]
By: /s/ Robert M. Shields, Jr.
---------------------------
Name: Robert M. Shields, Jr.
Title: Chief Executive Officer
and Treasurer
/s/ Earl M. Jones
----------------------------------
Earl M. Jones
2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S REPORT ON FORM 10-QSB FOR THE QUARTER ENDED JUNE 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-QSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 366,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 370,000
<PP&E> 245,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,371,000
<CURRENT-LIABILITIES> 1,333,000
<BONDS> 0
0
0
<COMMON> 12,015,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,371,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 103,000
<OTHER-EXPENSES> 381,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (4,000)
<INCOME-PRETAX> (480,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (480,000)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
