UNITED STATES
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 no. 0-19502
SISKON GOLD CORPORATION
(Exact name of registrant as specified in its charter)
CALIFORNIA 68-0254824
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
350 Crown Point Circle, Suite 100
GRASS VALLEY, CA. 95945 (916) 273-4311
(Address of principal executive offices) (Zip Code) (Registrant's telephone
number)
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
CLASS A COMMON STOCK
(Title of Class)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934, during the past 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 .
As of August 5, 1997, the number of Class A common stock outstanding was
29,745,058, the number of Series 1 Class B Common Stock outstanding was 638,
and the number of Series A cumulative preferred stock outstanding was 261.
Transitional Small Business Disclosure Format (check one): Yes . No X .
<PAGE>1
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements 2
ITEM 2. Management's Discussion and Analysis 2
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings 5
ITEM 2. Changes in Securities 5
ITEM 3. Defaults Upon Senior Securities 6
ITEM 4. Submission of Matters to a Vote of Security Holders 6
ITEM 5. Other Information 6
ITEM 6. Exhibits and Reports on Form 8-K 6
SIGNATURES 6
FINANCIAL STATEMENTS 7
<PAGE>2
PART I
ITEM 1. FINANCIAL STATEMENTS.
The Consolidated Interim Financial Statements of Siskon Gold Corporation (the
"Company") are attached at the end of this document and incorporated fully by
this reference.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Safe Harbor Statement Under the Private Securities Litigation Reform Act of
1995
With the exception of historical facts stated herein, the matters discussed in
this report are "forward looking" statements that involve risks and
uncertainties that could cause actual results to differ materially from
projected results. Such "forward looking" statements include, but are not
necessarily limited to, statements regarding anticipated levels of future
production in tons of material produced as well as ounces of gold recovered
from the mining operations of the Company, projected costs and expenditures
relating to the Company's mining operations and exploration activities, and the
availability of future debt and equity capital on commercially reasonable
terms. Factors that could cause actual results to differ materially include, in
addition to the other factors identified in this report, risks and
uncertainties relating to general economic and political conditions, both
domestically and internationally, the cyclical and volatile prices of gold,
unanticipated ground and water conditions, unanticipated grade and geological
problems, including lower than anticipated ore grades, metallurgical and other
processing problems, availability of seasoned personnel and equipment, delays
in the receipt of, or failure to receive necessary governmental permits or the
renewals thereof, changes in the law and regulations governing gold mining
specifically and environmental matters generally, results of financing efforts
and market conditions, and other risk factors. Readers of this report are
cautioned not to put undue reliance on "forward looking" statements which are,
by their nature, uncertain as reliable indicators of future performance. The
Company disclaims any intent or obligation to publicly update these "forward
looking" statements, whether as a result of new information, future events or
otherwise.
(a) PLAN OF OPERATIONS
The Company's ability to continue regular corporate activities and to continue
as a "going concern" over the foreseeable future are dependent upon generating
sufficient working capital from selling the Company's assets and raising
additional capital through debt or equity offerings, or through a strategic
merger with a financial partner. Due to extremely poor ground conditions at
the San Juan Mine, mining operations at the mine have ceased and the Company is
currently reclaiming the property in accordance with the requirements of its
operating permits. Due to recent declines in the price of gold, it is unlikely
that the Company will be successful in raising additional working capital
through debt or equity offerings. The Company is actively engaged in the
search for a merger partner, or a joint venture partner for the San Juan Mine
and/or Big Horn Mine, but the Company's efforts have not been well received,
primarily due to the decline in gold prices and the amount of secured debt
encumbering the Company's properties. In addition, the Company has been trying
to sell pieces of its mining equipment in an effort to raise working capital.
However, the Company has not been successful in selling enough mining equipment
at acceptable prices to raise sufficient working capital to fund continuing
operations. Consequently, unless the Company is successful in attracting a
merger partner, or otherwise is successful in raising additional working
capital, the Company will likely continue to sell its assets to pay its
liabilities. While the Company has no current plans to file for protection
under the United States Bankruptcy laws, it is conceivable that the Company may
do so in the future. However, because the Company's San Juan Mine and Big Horn
Mines are pledged as collateral to the Company's secured creditors, it is
unlikely that a bankruptcy filing will succeed in preserving these assets
because the value of the San Juan Mine and Big Horn Mine is likely to be less
than the amount of the secured debt encumbering the properties.
The San Juan Mine produced 3,483 ounces of gold during the first five months of
1997. The average price for gold during this period of 1997 was $346 versus
$395 for the same period of 1996. During the first week in April, 1997
unforeseen ground failures occurred in the area where mining operations were
advancing in the eastern ore body which prevented any further progress from
<PAGE>3
existing haulage ways. The number of mining crews were reduced and retreat
mining was conducted back to the area of the underground plant. In early May
the Company suspended mining operations and reviewed the feasibility and costs
associated with alternative mining plans. The review indicated that 101,460
ounces of reserves are not economically mineable and that a new access tunnel
would have to be made to develop and mine the west ore blocks. The existing
tunnel to the east ore body is currently being closed. The reduction in
reserves resulted in a reduction in the carrying value of development costs and
mineral rights of $5,575,190. After the reduction, the carrying value of
development costs and mineral rights totalled $2,518,049 at June 30, 1997.
Since the cessation of mining operations at the San Juan Mine, the price of
gold has declined to the $320 per ounce level and there is no assurance that
gold prices will recover to economically mineable levels or not decline
further. The ability to develop and implement any future mining plans, is
dependant upon the Company's ability to raise additional capital through equity
or debt offerings. The prospects of obtaining additional capital or joint
venture partners in the near future is unlikely. Consequently, the Company has
decided to put its existing properties into a care and maintenance basis and
has terminated the contractual agreements with its officers effective August
15,1997. Mr. Callaway will continue to act as President and Chief Executive
Officer on a month to month basis. To provide an opportunity for future
exploration and development opportunities, the Company has agreed to contribute
its mining equipment, plant and supplies in exchange for a ten percent
interest in Cherokee Development Corporation ("Cherokee") together with a right
to receive twenty percent of the net profits derived from the Columbo Mine. Mr
Callaway currently owns one hundred percent of Cherokee. Cherokee has a lease
on the Columbo Mine and intends to conduct active mineral exploration and
development activities. Based on current estimates of the plant and equipment,
a write down of $3,174,396 was taken against the carrying value of plant and
equipment. After the reduction, the carrying value of plant and equipment
amounted to $1,337,000 at June 30, 1997. It is reasonably possible that the
exchange could result in a further loss on transfer to Cherokee Development
Corporation in accordance with generally accepted accounting principles.
In July, 1997, the exploration agreement with Boulder Creek Exploration which
was entered into in May 1997 was terminated. The Company's ability to continue
corporate activities and to fund the acquisition, exploration and development
of these mineral properties over the foreseeable future is dependant upon
generating sufficient working capital from selling timber at the Gray Eagle and
Iron Creek properties, reducing overhead costs, sales of royalty interests and
raising additional capital through equity or debt offerings. No assurance can
be given that these activities will generate sufficient working capital.
The debt secured by the San Juan and Big Horn properties amounting to
$8,710,920 at June 30, 1997, matures November 15, 1998. The ability of the
Company to meet these debt requirements is dependant upon the successful
renegotiation or refinancing of the debt. No assurance can be given that the
Company will successfully renegotiate or refinance the debt.
Due to the price decline of the Company's Class A common stock the NASDAQ
National Market System removed the listing of the Company's Class A common
stock effective April 18, 1997. The Company's Class A common stock is now
quoted on the OTC Bulletin Board under the symbol "SISK".
(b) FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YEAR TO DATE COMPARISON
Siskon had cash on hand of $181,333 and $937,006 at June 30, 1997 and 1996
respectively.
Cash used by operating activities for the first six months of 1997 totalled
$1,052,002 versus $798,981 for the first six months of 1996.
Cash provided by investing activities during the first six months of 1997
totalled $275,399 versus $2,674,309 used during the first six months of 1996.
During 1997, $308,000 was received from the sale of equipment, $17,500 from the
sale of oil and gas royalty interests in Montana and note collections of $1,231
as compared to $2,120 from the sale of equipment, $1,250 from the sale of the
Croman property and note collections of $1,565 during the first six months of
1996. Cash used in investing activities during the first six months of 1997
totalled $51,692 as compared to $2,675,782 in 1996. During 1997, $30,806 was
expended on equipment at the San Juan Mine and $20,886 on permitting costs at
<PAGE>4
the Big Horn Mine as compared with $472,970 for equipment, $1,941,320 for
development and $160,772 for bonds at the San Juan Mine during 1996 and
$100,720 for permitting at the Big Horn Mine during 1996. In mid-May 1996,
construction of the San Juan Mine was completed. The note receivable
collateralized by the Comstock property amounting to $275,326 is currently in
default and the Company is initiating foreclosure proceedings.
Cash provided by financing activities during the first six months of 1997
totalled $450,000 versus $500,000 during the first six months of 1996, both
from the issuance of convertible debt. On February 18, 1997 the Company issued
convertible debentures bearing interest at 8% and a maturity date of February
1, 1999. During the first six months of 1997, $1,886,751 of convertible debt
was converted into 13,017,029 shares of Class A common stock and 512 shares of
Series A convertible preferred stock and 211 shares of the preferred stock thus
issued were converted into 1,884,549 shares of Class A common stock.
Cash used in financing activities during the first six months of 1997 totalled
$220,859 as compared to $340,736 during the first six months of 1996. During
1997, $193,331 was paid on equipment and land notes and $27,528 for
registration and issuance costs. During 1996 $48,964 was paid on capital lease
obligations, $244,655 on equipment and land notes and $47,117 on registration
and issuance costs.
Siskon incurred a net loss of $8,024,781 for the first six months of 1997 as
compared to a net loss of $954,944 for the first six months of 1996. During
the first six months of 1997 revenues of $1,206,096 resulted from the sale of
3,483 ounces of fine gold at an average price of $346 per ounce. Production
costs, non-cash costs and royalty expense totalled $1,474,421, $689,083 and
$24,273, respectively. A property, plant and equipment impairment loss of
$8,749,586 resulted from the reduction in the reserves at the San Juan Mine and
a reduction of mining plant and equipment to its net realizable value.
Subsequent to May 30, 1997, no revenues from gold sales were received as
mining operations at the San Juan Mine had ceased. Commencing in Mid-May 1996,
revenues, production costs, non-cash costs and royalties at the San Juan Mine
were reflected in operations. During the first six months of 1996 revenues of
$609,343 resulted from the sale of 1,583 ounces of fine gold at an average
price of $385 per ounce. Production costs, non-cash costs and royalty expense
totalled $639,070, $211,792 and $12,152, respectively. During the first six
months of 1996 while the Company's operations were in the development stage
gold revenues received from 5,003 ounces of gold amounting to $1,993,170 at an
average price of $398 were credited against capitalized costs.
Royalties were $34,418 in the first six months of 1997 versus $37,787 in the
first six months of 1996. During the second quarter of 1997 Cominco cancelled
its lease of the Iron Creek property.
General and administrative expenses were $505,976 in the first six months of
1997 as compared with $671,330 during the first six months of 1996. The
reduction resulted primarily from reductions in overhead and printing costs. At
June 30, 1997 accrued compensation and interest owed to Mr. Callaway, President
and Chairman of the Board, amounted to $93,891 which was paid in August 1997.
Exploration and project costs were $83,084 in the first six months of 1997
versus $12,152 in the first six months of 1996. The increase related primarily
to costs of the Gray Eagle Mine litigation and exploration in Northern
California and Latin America.
The gain on the sale of mineral rights was $17,500 during the first six months
of 1997 from the sale of the oil and gas royalty interests in Montana versus
$1,250 from the sale of the Croman property during the first six months of
1996. During the first six months of 1997 equipment was sold for a loss of
$139,789 primarily from the write off of unrecoverable underground equipment at
the San Juan Mine versus a gain of $2,120 during the first six months of 1996.
Interest expense during the first six months of 1997 amounted to $827,513
including amortization of the discount of the price of the stock underlying
convertible debt of $287,923. During the first six months of 1996 interest
expense was $101,279 after capitalization of interest costs of $562,757 to
property, plant and equipment. Interest and miscellaneous income was $36,534
in the first six months of 1997 as compared with $71,092 in the first quarter
of 1996 reflecting higher cash balances during 1996.
The Company believes that its business and operations were not materially
affected by inflation during the first six months of 1997 and 1996.
<PAGE>5
QUARTER TO QUARTER COMPARISON
Siskon incurred a net loss of $6,459,260 for the second quarter of 1997
compared to a net loss of $703,838 for the second quarter of 1996. During the
second quarter of 1997 revenues of $348,738 resulted from the sale of 1,024
ounces of fine gold at an average price of $341 per ounce. Production costs,
non-cash costs and royalty expense totalled $404,543, $225,711 and $7,184,
respectively. A property, plant and equipment impairment loss of $8,749,586
resulted from the reduction in the reserves at the San Juan Mine and a
reduction of mining plant and equipment to its net realizable value. Subsequent
to May 30, 1997, no revenues from gold sales were received since mining
operations at the San Juan Mine had ceased. Commencing in Mid-May 1996,
revenues, production costs, non-cash costs and royalties at the San Juan Mine
were reflected in operations. During the second quarter of 1996 revenues of
$609,343 resulted from the sale of 1,583 ounces of fine gold at an average
price of $385 per ounce. Production costs, non-cash costs and royalty expense
totalled $639,070, $211,792 and $12,152, respectively. During the second
quarter of 1996 while the Company's operations were in the development stage
gold revenues received from 1,233 ounces of gold amounting to $482,836 at an
average price of $392 were credited against capitalized costs.
Royalties were $16,348 in the second quarter of 1997 versus $14,881 in the
second quarter of 1996. During the second quarter of 1997 Cominco cancelled
its lease of the Iron Creek property.
General and administrative expenses were $215,600 in the second quarter of 1997
as compared with $358,390 during the second quarter of 1996. The reduction
resulted primarily from reductions in overhead and printing costs.
Exploration and project costs were $53,492 in the second quarter of 1997 versus
$12,152 in the second quarter of 1996. The increase resulted primarily from
costs of the Gray Eagle Mine litigation and exploration in Northern California
and Latin America.
During the second quarter of 1997 the loss on sale of equipment amounted to
$91,442 resulting primarily from the write off of unrecoverable underground
equipment at the San Juan Mine. There was no sales in the same period of 1996.
During the second quarter of 1996 a gain on the sale of mineral rights of
$1,250 resulted from the sale of the Croman property. There were no sales in
the same period of 1997.
Interest expense during the second quarter of 1997 amounted to $269,084
including amortization of the discount of the price of the stock underlying
convertible debt of $46,666. During the second quarter of 1996 interest expense
was $101,279 after capitalization of $339,710 to property, plant and equipment.
Interest and miscellaneous income was $17,900 in the second quarter of 1997 as
compared with $25,756 in the second quarter of 1996 reflecting higher cash
balances during 1996.
PART II
ITEM 1. LEGAL PROCEEDINGS
On May 2, 1997, a former employee filed an application, James Tharp v. Siskon
Gold Corporation, et al., with the State Worker's Compensation Appeals Board
(the "Appeals Board"), Case No. 96SJ0186690, alleging that the employer was
engaged in "serious or willful misconduct" contributing to the plaintiff's
injury. Plaintiff was injured in a mining accident on the premises of the
Company and has been receiving treatment in accordance with California Worker's
Compensation laws. The amount of the claim is estimated to be $150,000. If the
Appeals Board should sustain the plaintiff's application, any payments made in
connection with the allegations would not be covered by insurance. The Company
disputes the claim of the plaintiff and intends to vigorously defend itself
from the allegations contained in the application.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
<PAGE>6
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Not applicable.
(b) REPORTS ON FORM 8-K
Not applicable.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
SISKON GOLD CORPORATION
Dated August 19, 1997 TIMOTHY A. CALLAWAY
Timothy A. Callaway, President,
CEO and Chairman of the Board
Dated August 19, 1997 MICHAEL K. EPSTEIN
Michael K. Epstein,
Vice-President Finance and
Chief Financial Officer
<PAGE>7
FINANCIAL STATEMENTS
<PAGE>8
FORM 10-QSB - ITEM 1
SISKON GOLD CORPORATION AND SUBSIDIARY
LIST OF FINANCIAL STATEMENTS
The following consolidated financial statements of the Company are included in
response to Item 1:
Consolidated Balance Sheets -
June 30, 1997 (Unaudited) and December 31, 1996 9
Consolidated Statements of Operations - (Unaudited)
Six Months Ended June 30, 1997 and 1996 10
Consolidated Statements of Cash Flows - (Unaudited)
Six Months Ended June 30, 1997 and 1996 11
Notes to Consolidated Financial Statements 12
<PAGE>9
SISKON GOLD CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 (UNAUDITED) AND DECEMBER 31, 1996
1997 1996
ASSETS
CURRENT ASSETS
Cash and cash equivalents $181,333 $812,606
Accounts receivable 4,861 6,080
Inventories 91,630 230,875
Prepaid expenses and other 134,079 400,792
__________ __________
Total Current Assets 411,903 1,450,353
NOTES RECEIVABLE 291,494 292,812
PROPERTY, PLANT AND EQUIPMENT, net 7,005,241 16,653,046
OTHER ASSETS 325,866 428,569
__________ ___________
TOTAL ASSETS $8,034,504 $18,824,780
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $355,616 $773,306
Current portion of long-term debt 205,056 292,248
__________ ___________
Total Current Liabilities 560,672 1,065,554
LONG TERM DEBT ($8,772,642 in 1997 and
$9,772,640 in 1996 to related parties) 9,104,530 10,692,224
OTHER LIABILITIES 201,190 60,551
__________ ___________
Total Liabilities 9,866,392 11,818,329
__________ ___________
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' EQUITY
Capital Stock
Preferred stock, $.001 par value;
Convertible Series A: 301 in 1997;
0 in 1996 1 -
Common stock, $.001 par value; issued
and outstanding: Class A: 26,893,895
in 1997; 11,989,662 in 1996 26,893 11,989
Convertible Class B Series 1: 638
in 1996 and 1995 1 1
Additional paid-in capital 56,094,557 53,730,633
Stock subscription receivable (344,803) (326,812)
Accumulated deficit (57,608,537) (46,409,360)
___________ ___________
Total Shareholders' Equity (1,831,888) 7,006,451
___________ ___________
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 8,034,504 $18,824,780
=========== ===========
See notes to consolidated financial statements.
<PAGE>10
SISKON GOLD CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
Three months ended June Six months ended June 30
<S> <C> <C> <C> <C>
1997 1996 1997 1996
REVENUES
Gold sales $ 348,738 $ 609,343 $1,206,096 $609,343
Royalties and leases 16,348 14,881 34,418 37,787
____________ __________ __________ ________
Total Revenues 365,086 624,224 1,240,514 647,130
____________ __________ __________ ________
OPERATING EXPENSES
Production 404,543 639,070 1,474,421 639,070
Depreciation, depletion and 225,711 211,792 689,083 211,792
Property, plant and equipment
impairment loss 8,749,586 - 8,749,586 -
General and administrative 215,600 358,390 505,976 671,330
Royalties 7,184 32,385 24,273 40,913
Exploration and project costs 53,492 12,152 83,084 12,152
___________ __________ __________ _________
Total Operating Expenses 9,656,116 1,253,789 11,526,423 1,575,257
OPERATING LOSS (9,291,030) (629,565) (10,285,909) (928,127)
___________ __________ __________ _________
OTHER (EXPENSE) INCOME
Gain on sale of property - 1,250 17,500 1,250
(Loss) gain on sale of equipment (91,442) - (139,789) 2,120
Interest expense (269,084) (101,279) (827,513) (101,279)
Interest and other income 17,900 25,756 36,534 71,092
__________ __________ _________ _________
Total Other (Expense) Income (342,626) (74,273) (913,268) (26,817)
__________ __________ _________ _________
NET LOSS $ (9,633,656) $ (703,838) $ (11,199,177) $(954,944)
============ ========== ============= =========
NET LOSS PER SHARE $ (0.44) $(0.07) $ (0.64) $ (0.09)
============ ========== ============= =========
WEIGHTED AVERAGE
NUMBER OF SHARES 22,021,340 10,642,101 17,672,316 10,602,323
============ ========== ============ ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE>11
SISKON GOLD CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (11,199,177) $(442,522)
Adjustments to reconcile net loss to net cash used in
operating activities
Issuance of common stock for services - 50,000
Issuance of common stock for interest 73,973 101,279
Discount on price of stock underlying convertible debt 287,923 -
Depreciation, depletion and amortization 689,083 211,792
Property, plant and equipment impairment loss 8,749,586 -
Gain on sale of property (17,500) (1,250)
Loss (gain) on sale of equipment 139,789 (2,120)
Accrued interest on convertible debt 372,558 -
Amortization of deferred financing costs 74,757 -
Accrued interest receivable (17,991) (8,971)
Decrease (increase) in accounts receivable 1,306 (366)
Decrease (increase) in inventories 139,245 (73,645)
Decrease (increase) in prepaid expenses 72,136 (3,523)
(Decrease) Increase in accounts payable and accrued liabilities (417,690) (117,233)
__________ __________
Net cash used in operating activities (1,052,002) (798,981)
__________ __________
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property 17,500 1,250
Proceeds from sale of equipment 308,000 2,120
Collections on notes receivable 1,231 1,565
Purchase of equipment (30,806) (472,970)
Deferred development costs (20,886) (2,042,040)
Increase in reclamation bonds - (160,772)
__________ __________
Net cash provided by (used in) investing activities 275,399 (2,674,309)
__________ __________
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of convertible debt 450,000 500,000
Payments of obligations under capital leases - (48,964)
Payments of long term debt (193,331) (244,655)
Registration and issuance costs (27,528) (47,117)
__________ __________
Net cash provided by (used in) financing activities 145,330 159,264
__________ __________
DECREASE IN CASH (631,273) (3,314,026)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 812,606 4,251,032
__________ __________
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 181,333 $ 937,006
========== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE>12
SISKON GOLD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
Siskon Gold Corporation and subsidiary (the Company) is engaged in the
business of exploring, developing and mining precious mineral
properties, principally gold. Gold dore', the Company's principle
product, is produced and sold in the United States. At June 1997, the
Company owned interests in various mineral properties located in the
Western United States. The Company's operations are conducted in one
business segment: mineral resource exploration, development and
production.
In early May the Company suspended mining operations and reviewed the
feasibility and costs associated with alternative mining plans. The
review indicated that 101,460 ounces of reserves are not economically
mineable. The reduction in reserves resulted in a reduction in the
carrying value of development costs and mineral rights of $5,575,190.
Should the Company be unable to raise additional capital and remain in
operation, it may be necessary to further write down the carrying value
of its development costs and mineral rights totalling $2,518,049 at June
30, 1997 resulting in additional losses to the Company.
Since the cessation of mining operations at the San Juan Mine, the price
of gold has declined to the $320 per ounce level and there is no
assurance that gold prices will recover to economically mineable levels
or not decline further. The ability to develop and implement any future
mining plans, is dependant upon the Company's ability to raise additional
capital through equity or debt offerings. The prospects of obtaining
additional capital or joint venture partners in the near future is
unlikely. Consequently, the Company has decided to put its existing
properties into a care and maintenance basis. To provide an opportunity
for future exploration and development opportunities, the Company has
agreed to contribute its mining equipment, plant and supplies in
exchange for a ten percent interest in Cherokee Development Corporation
("Cherokee") together with the right to receive twenty percent of the net
profits derived from the Columbo Mine. Mr Callaway and his family
currently own one hundred percent of Cherokee. Cherokee owns or leases
several mineral exploration properties and intends to conduct active
mineral exploration and development activities. Based on current
estimates of the plant and equipment a write down of the carrying value
of plant and equipment to net realizable value of $3,174,396 was made.
After the reduction, the carrying value of plant and equipment amounted
to $1,337,000 at June 30, 1997. It is reasonable possible that the
exchange could result in a further loss on transfer in accordance with
generally accepted accounting principles.
The Company's ability to continue corporate activities and to fund the
acquisition, exploration and development of these mineral properties over
the foreseeable future is dependant upon generating sufficient working
capital from sales of timber, reducing overhead costs, sales of royalty
interests and raising additional capital through equity or debt
offerings. No assurance can be given that these activities will
generate sufficient working capital, or that the Company will remain in
operation for the next twelve months.
The accompanying interim consolidated financial statements have been
prepared by the Company without audit and contain all adjustments which,
in the opinion of management, are necessary to present fairly the
Company's financial position as of June 30, 1997 and December 31, 1996
and the results of its operations and cash flows for the interim periods
ending June 30, 1997 and 1996. Such adjustments consist of normal,
recurring adjustments.
The accompanying interim consolidated financial statements do not contain
all disclosures required by generally accepted accounting principles for
annual financial statements. It is suggested that these financial
statements be read in conjunction with the audited consolidated
financial statements and the related notes contained in the Company's
Annual Report on Form 10-KSB, for the year ended December 31, 1996.
Operating results for interim periods are not necessarily indicative of
those expected for a full year.
<PAGE>13
2. RECENT ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") 130, "Reporting
Comprehensive Income." SFAS 130 establishes standards for the reporting
and display of comprehensive income and its components in a full set of
general purpose financial statements. Comprehensive income is defined as
the change in equity of a business enterprise during a period from
transactions and other events and circumstances from non-owner sources.
SFAS 130 is effective for fiscal years beginning after December 15, 1997.
The Company does not believe that SFAS 130 will have a material impact on
its financial statements.
In July 1997, the FASB issued SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS 131 requires publicly-held
companies to report financial and other information about key revenue
producing segments of the entity for which such information is available
and is utilized by the chief operating decision maker. Specific
information to be reported for individual segments includes profit or
loss, certain revenue and expense items and total assets. A
reconciliation of segment financial information to amounts reported in
the financial statements would be provided. SFAS 131 is effective for
fiscal years beginning after December 15, 1997. The Company does not
believe that SFAS 131 will have a material impact on its financial
statements.
3. INVENTORIES
Inventories at June 30 1997, and December 31, 1996 were as follows:
1997 1996
Gold dore' inventory $ 19,180 $ 81,380
Materials and supplies 72,450 149,495
__________ __________
$ 91,630 $ 230,875
========== ==========
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at June 30 1997, and December 31, 1996 were
as follows:
<TABLE>
<S> <C> <C>
1997 1996
Property acquisition and development costs
San Juan $20,747,399 $ 20,747,399
Big Horn 1,200,254 1,179,728
Gold Point 95,000 95,000
Mining equipment 4,976,340 5,442,216
Plant 1,312,165 1,326,380
Office equipment, furniture and vehicles 109,528 145,699
___________ ____________
28,440,686 28,936,422
Less: accumulated depreciation, depletion and
amortization 2,390,342 1,987,859
property, plant and equipment impairment loss 19,045,103 10,295,517
___________ ____________
$7,005,241 $16,653,046
=========== ============
</TABLE>
<PAGE>14
5. CONVERTIBLE DEBT
On February 18, 1997 the Company issued convertible notes for $450,000
with interest at 8%, due February 1, 1999. The Company issued the
convertible debentures in reliance upon an exemption from the
registration provisions of the Securities Act of 1933, as amended,
provided for in Regulation S promulgated thereunder. The debentures were
offered and sold in an "offshore" transaction to qualified persons who
were not "U.S. Persons," as defined in Regulation S. At the option of the
holder, the principle and accrued interest may be converted into shares
of the Company's Class A common stock after forty five days from the date
of issuance at a conversion price equal to the lesser of seventy five
percent of the market price of the common stock on February 18, 1997 or
on the date of conversion. The market price for the applicable date is
defined as the average closing bid price of the common stock for five
days preceding that date.
During the first six months of 1997, $1,886,751 of convertible debt was
converted into 13,017,029 shares of Class A common stock and 512 shares
of Series A convertible preferred stock and 211 shares of the preferred
stock thus issued were converted into 1,884,549 shares of Class A common
stock. From July 1, 1997 to August 5, 1997, an additional $46,571 of debt
and 42 shares of preferred stock has been converted into 2,852,102 shares
of Class A common stock. As of August 5, 1997, $15,624 of debt and 261
shares of Series A convertible preferred stock were unconverted.
6. CAPITAL STOCK, STOCK OPTIONS AND WARRANTS
Stock option and warrant transactions for the six months ended June 30,
1997 were as follows:
<TABLE>
<CAPTION>
Number of Exercise Exercisable
CLASS A SHARES PRICE PER SHARE OPTIONS
<S> <C> <C> <C>
Options outstanding at:
December 31, 1996 723,500 $2.00 - $4.94 501,000
Granted 3,000 0.78 3,000
Cancelled (69,500) 0.78 - 3.05 (47,000)
Vested - 1.87 - 3.05 70,000
_________ _________
June 30, 1997 657,000 $0.78 - $4.94 527,000
========= =========
Warrants outstanding at
December 31, 1996 2,819,083 $2.82 - $7.50 2,819,083
Cancelled (75,000) 7.50 (75,000)
_________ _________
June 30, 1997 2,744,083 $2.82 - $6.00 2,744,083
========= =========
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL
In May 1991, the Company received a request from the California Regional
Water Quality Control Board to prepare an environmental site assessment
report on a site known as the Croman Mill Site, located in Siskiyou
County, California. In April 1996, state and federal environmental
officials and a representative of the Company conducted a site visit.
Several soil and water samples were taken by the officials as well as the
Company. The Croman Mill Site is a historical mining mill site which
contains stockpiled mine tailings from mining operations conducted by
prior operators and owners and represents a "pre-existing" condition in
relation to the time the Company owned the property. The Company owned
the site from 1989 to June 1996 and did not conduct any mining related
activities on the site during that time. As of August 5, 1997 no further
correspondence had been received from the respective parties in relation
to this matter. In the event that the test results lead to further
testing and analysis which ultimately results in a clean-up and abatement
order issued by a state or federal environmental agency, then the Company
intends to seek indemnification from the prior operators of the property
who may have been primarily responsible for the condition of the mine
tailings located on the mill site.
<PAGE>15
In March 1997 an action in U.S. District Court was brought against the
Company by the California Sportfishing Protection Alliance alleging
violations of the Clean Water Act at the Gray Eagle Mine and Croman Mill
Site in Siskiyou County, California. The allegations include the failure
to obtain a permit for the wastewater treatment plant, discharges from
the mine and failure to monitor pollutants released into Indian Creek.
The suit seeks to require the Company to obtain a discharge permit,
payment towards an environmental remediation fund, civil penalties of
$25,000 per day and attorneys fees. The Company believes it has a
meritorious defense in that; the water treatment plant owned by a prior
mine operator is on U.S. Forest Service ("USFS") land, the plant is
operating under the proper authorizations and satisfactorily treats
discharges into Indian Creek; the Croman Mill Site is more than three
miles from the Gray Eagle Mine, the tailings came from prior mine owners
and a prior lumber company's actions, the Company's activities on the
site during the time of its ownership did not include any related mining
activities and that the prior owners who created the mill site are liable
for any remediation. However, there are no assurances that the Company
will prevail or that the ultimate judgement or costs of defending itself
will not have a material impact on the Company's financial position.
In March 1994, the Company received preliminary notice from the USFS
naming the Company and six other parties as potentially responsible
parties to a hazardous waste site in Siskiyou County, California. The
hazardous waste site is believed to be related to old mill tailings,
storage containers and a mine tunnel. One of the sites may have been the
Siskon Mine which was previously owned by the Company and may have been
operated by a predecessor of the Company among others. In September
1995, the Company received a letter from the USFS requesting a field
visit to the Siskon Mine, however the field visit was postponed due to
the occurrence of forest fires in the area. On October 31, 1996, the
Company received a notice from the USFS that a field visit to the site
was scheduled for November 4, 1996. The USFS has contracted with a
private contractor to prepare an environmental evaluation to determine if
the site poses any significant environmental risk and, if so, the
establishment of clean-up goals. If necessary, an Engineering
Evaluation/Cost Assessment may be conducted by the USFS to determine
appropriate alternatives, if any, for removal of any hazardous wastes
located on the site. Due to flooding in the area, the USFS has agreed to
an additional visit to the site with Company representatives at a later
date. Until more information is developed, the Company is not able to
determine if it will be liable for environmental remediation or estimate
the amount of liability, if any. In the event that the Company incurs any
liability associated with the site, the Company intends to seek
indemnification from other potentially responsible parties who may have
been responsible for creating the hazardous waste found on the property.
In May 1997, a former employee filed an application with the California
State Worker's Compensation Appeals Board alleging that the employer was
engaged in "serious or willful misconduct" contributing to the
plaintiff's injury. Plaintiff was injured in a mining accident on the
premises of the Company and has been receiving treatment in accordance
with California Worker's Compensation laws. The amount of the claim is
estimated to be $150,000. If the California State Worker's Compensation
Appeals Board should sustain the plaintiff's application, any payments
made in connection with the allegations would not be covered by any
available insurance. The Company disputes the claim of the plaintiff and
intends to vigorously defend itself from the allegations contained in the
application.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
10-QSB FOR THE PERIOD ENDED JUNE 30, 1997 FOR SISKON GOLD CORPORATION AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 182,333
<SECURITIES> 0
<RECEIVABLES> 4,861
<ALLOWANCES> 0
<INVENTORY> 91,630
<CURRENT-ASSETS> 411,903
<PP&E> 28,440,686
<DEPRECIATION> 21,435,445
<TOTAL-ASSETS> 8,034,504
<CURRENT-LIABILITIES> 560,672
<BONDS> 9,104,530
0
1
<COMMON> 26,894
<OTHER-SE> (1,858,783)
<TOTAL-LIABILITY-AND-EQUITY> 8,034,504
<SALES> 1,206,096
<TOTAL-REVENUES> 1,340,514
<CGS> 1,474,421
<TOTAL-COSTS> 11,526,423
<OTHER-EXPENSES> 85,755
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 827,513
<INCOME-PRETAX> (11,199,177)
<INCOME-TAX> 0
<INCOME-CONTINUING> (11,199,177)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,199,177)
<EPS-PRIMARY> (0.64)
<EPS-DILUTED> (0.64)
</TABLE>
