UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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
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SISKON GOLD CORPORATION
(Exact name of registrant as specified in its charter)
California 68-0254824
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification No.)
228 Commercial Street, Suite 311
Nevada City, CA. 95959 (916) 273-4311
(Address of principal executive (Zip Code) (Registrant's telephone
offices) number, including area code)
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Securities registered pursuant to Section 12(b) of the Act: None.
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Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock
(Title of Class)
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934,
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes . No X .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ X ].
Revenues for the year ended December 31, 1997 were $1,303,891.
As of June 30, 1998, the aggregate market value of voting Class A common stock
held by non-affiliates was $551,493 based on the average bid and ask price of
$0.018.
As of June 30, 1998, the number of Class A common stock outstanding was
32,194,633, the number of Series 1 Class B common stock outstanding was 638 and
the number of Series A Convertible Preferred Stock outstanding was 241.
Transitional Small Business Disclosure Format (check one): Yes No X
<PAGE>1
TABLE OF CONTENTS
PART I
GLOSSARY OF MINING TERMS................................................... 2
ITEM 1. Description of Business..................................... 4
ITEM 2. Description of Properties................................... 5
San Juan............................................. 5
Big Horn............................................. 7
Other Properties..................................... 8
Other Interests...................................... 9
Environmental Matters................................ 9
Safe Harbor Statement................................10
ITEM 3. Legal Proceedings...........................................10
ITEM 4. Submission of Matters to a Vote of Security Holders.........10
PART II
ITEM 5. Market for Common Equity and Related Stockholder Matters....10
Comparative Market Prices............................10
Holders..............................................11
Dividends............................................11
ITEM 6. Management's Discussion and Analysis or Plan of Operation...11
Plan of Operation....................................11
Financial Condition and Results of Operations........12
ITEM 7. Financial Statements........................................14
ITEM 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure..................14
PART III
ITEM 9. Directors and Executive Officers, Promoters and Control s;
Personcompliance with Section 16(a) of the
Exchange Act..........................................15
ITEM 10. Executive Compensation......................................16
ITEM 11. Security Ownership of Certain Beneficial Owners and
Management...........................................16
ITEM 12. Certain Relationships and Related Transactions..............17
ITEM 13. Exhibits and Reports on Form 8-K
Exhibits.............................................18
Reports on Form 8-K..................................19
SIGNATURES ................................................20
FINANCIAL STATEMENTS.......................................................21
<PAGE>2
GLOSSARY OF MINING TERMS
Assay - the tests performed on a sample to determine mineral content.
Bank cubic yard (BCY) - measurement of the volume of material contained in one
compacted (in place) cubic yard. A dry bulk cubic yard of the lower gravels at
the San Juan Mine is equivalent to 1.57 tons.
Cash cost per ounce - includes all mining, processing and other plant costs,
state and local taxes (other than income) and refining expenses, on-site general
and administrative costs, and other direct costs; but excludes all royalties,
depreciation, depletion and amortization, corporate general and administrative
expenses, mineral exploration expense, financing costs and long-term reclamation
accruals.
Concentrate - a product containing valuable metal from which most of the waste
material in the ore has been removed.
Contained ounces - the estimated number of ounces of precious metals contained
in an ore body which is a gross measurement of ounces in the ground. The ounces
ultimately recovered from the ore (recoverable ounces) will be less than
contained ounces due to inherent inefficiencies in recovery methods.
Core drilling - drilling using a hollow diamond-studded bit to cut a cylindrical
hole leaving an undisturbed column of rock. This rock core is then removed for
analysis.
Cutoff grade - the lowest grade of mineralized material that can be mined and
processed economically.
Definition drilling - drilling between existing holes to better define the
geology or to improve the reliability of the ore reserve calculation.
Dilution - an estimate of the amount of waste mined with ore as part of normal
mining practices.
Dore - unrefined metal bars consisting of gold, silver and impurities which will
be further refined.
Flotation - a milling process for mineral concentration based on the selective
adhesion of minerals to air bubbles in a water and ground-ore mixture. Air and
specific chemicals are introduced into the mixture. The finely ground minerals
float to the surface forming a metal rich concentrate that is skimmed off the
surface. The resulting concentrates are shipped to a smelter where the final
products are produced.
Geologic resource - a mineralized zone in rock of unproven size and undetermined
economic value for which only preliminary sample data has been collected. Under
SEC standards, a mineral deposit does not qualify as a reserve unless sufficient
sampling demonstrates that the recoveries from the deposit are expected to be
sufficient to recover total cash and non-cash costs for the mine and related
facilities.
Grade - refers to the amount of gold contained in one ton or one cubic yard of
mineralized material. The grade for an ore reserve or geologic resource may, or
may not, be adjusted for dilution, mining loses or metallurgical loses.
Gravity concentration - a method of recovering precious metals and other heavy
constituents from ore in which the ore may be physically reduced in size,
combined with water and then processed utilizing gravity to separate the heavier
precious metals from the waste material.
Mill - a plant where ore is ground, often to fine powder, and the minerals and
metals are concentrated and extracted by physical or chemical processes.
Mineral deposit or mineralized material - a mineralized body which has been
delineated by appropriate drilling and/or underground sampling and containing a
sufficient amount of material with an average grade of metal or metals to
warrant further exploration expenditures. Under SEC standards, a mineral deposit
does not qualify as a reserve unless sufficient sampling demonstrates that the
recoveries from the deposit are expected to be sufficient to recover total cash
and non-cash costs for the mine and related facilities.
Net profits royalty or interest (NPI) - a royalty based on the pretax profits
(proceeds) remaining after recapture
<PAGE>3
of certain operating, capital and other costs. The type and manner of
computation of such capital and other costs may vary considerably.
Net smelter return royalty (NSR) - a royalty based on the actual sale price
received for the subject metal less the cost of smelting and/or refining the
material at an off-site refinery or smelter along with off-site transportation
costs.
Non-cash cost per ounce - includes depreciation, depletion and amortization of
capital assets as well as accruals for the costs of reclamation, long-term
monitoring and care that are usually incurred at a the end of mine life.
Ore or ore body - mineral or mineral deposit that can be economically mined and
processed.
Ounce - troy ounce, which is equivalent to 31.103 grams.
Patented mining claim - a mining claim, usually comprising about 20 acres in
area, to which the U.S. Government has conveyed title to the owner.
Pre-production capital costs - includes all development work, plant and
equipment and operating costs to bring the property to commercial levels of
production.
Probable (indicated) reserves - reserves for which grade and/or quantity are
computed from information sufficient for proven (measured) reserves, but the
sites for inspection, sampling and measurement are further apart or are
otherwise less adequately spaced. The degree of assurance, although lower than
that for proven (measured) reserves, is high enough to assume continuity between
points of observation.
Proven (measured) reserves - reserves for which (a) a quantity is computed from
dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or
quantity are computed from the results of detailed sampling and (b) the sites
for inspection, sampling and measurement are spaced so closely and the geologic
character is so well defined that size, shape, depth and mineral content of
reserves are well established.
Recoverable ounces - those ounces contained in ore which can be ultimately
produced and shipped from the mine.
Recovery rate - percentage of a metal recovered in a mineral separation process.
Recovery rates vary significantly depending on physical, metallurgical and
economic circumstances.
Refining - a process for removing impurities from metals by introducing air and
fluxes into the molten metal. The impurities are removed as gas or slag.
Reverse circulation drilling - a type of rotary drilling that uses a double
walled drill pipe. Compressed air, water or other drilling medium is forced down
the space between the two pipes to the drill bit, and the drilled chips are
flushed back up to the surface through the center tube of the drill pipe.
Rotary drilling - drilling with a bit that brakes the rock into chips. The chips
are continually flushed from the hole (outside the drill pipe) and are collected
in sequence for geological examination and assay.
Tailings - material removed from a milling circuit after separation of the
valuable minerals.
Ton (short ton) - 2,000 pounds.
Underground development work - is the construction of tunnels and rooms
underground necessary to facilitate mining. If the material excavated contains
ore, it may be processed.
Unpatented mining claim - that portion of public mineral lands which a party has
staked or marked out in accordance with federal and state mining laws to acquire
the exclusive right to explore for and exploit the minerals which may occur on
such lands.
<PAGE>4
PART I
Item 1. Description of Business
Introduction
Siskon Gold Corporation ("Siskon" or the "Company"), a California corporation,
was formed in 1991 as a result of the consolidation of Centurion Gold Ltd., U.S.
Precious Metals, Inc., and Siskon Corporation, and which, with it's
predecessors, has been in existence since as early as 1935. Unless the context
otherwise indicates, reference to the Company includes its predecessors and its
majority owned Mexican subsidiary, Siskomex, S.A. de C.V.
The Company's primary business is the exploration, development and mining of
precious metal properties located primarily in the Western United States. The
properties are held either directly or through royalty interests. The Company's
primary properties are the San Juan and Big Horn Mines, respectively, located in
Nevada County and Los Angeles County, California.
In early May the Company suspended mining operations at the San Juan Mine 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.
Since the cessation of mining operations, the price of gold has declined to the
$290 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 dependent 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 resulting in a write down of the carrying
value of the development costs and mineral rights of $2,888,764. In November
1997 the Company entered into a contract with an equipment liquidation company
to sell the mobile mining equipment for $1,027,200 and loaned the company
$915,874 at 8.6% secured by the equipment and payable from the proceeds from the
sale of the equipment. Based on current estimates of the plant and equipment a
write down of $3,174,396 was made. After the reduction, the carrying value of
plant and equipment amounted to $850,106 at December 31, 1997.
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. 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.
In February 1997, the Company issued $450,000 in debt convertible into shares of
the Company's Class A common stock at a conversion price equal to 75% of the
market price on the date of conversion. During 1997, $1.9 Million of debt was
converted into 512 shares of Series A Convertible preferred shares and
15,569,075 shares of Class A Common Stock and 241 shares of the Series A
Convertible Preferred were converted into 4,700,796 shares of Class A Common
Stock
Exploration and Business Development
The Company has identified areas of geological interest near the San Juan Mine
and various potential mine sites in Mexico for exploration activities and spent
$118,059 in 1997. No material expenditures are currently anticipated during
1998.
Sales and Marketing
The Company shipped and sold 3,483 ounces of gold at an average gold price of
$346 during 1997 for refining by Metalor U.S.A. located in North Attleborough,
Massachussets. Gold can be sold on numerous markets throughout the world, and
the market price is readily ascertainable. The Company's sells all refined metal
to Gerald Metals, Inc. Due to the nature of the precious metals market, the
Company is not dependent on its customer to provide a market for its refined
gold.
Gold Price
<PAGE>5
The Company's future revenues, profitability and cash flow will be strongly
influenced by the price of gold. The gold price is unpredictable and affected by
numerous factors beyond the Company's control, including expectations for
inflation, the strength of the U.S. dollar in relation to the major currencies,
political and economic conditions, and production costs in major gold producing
regions. If the market price of gold falls below the cost of production and
remains at such level for any sustained period, the Company may suspend or
curtail its operations in order to minimize losses. During 1997, the price of
gold varied from a low of $283.00 to a high of $366.55 per ounce.
Environmental Matters
Reclamation
Generally, the Company is required to mitigate long-term environmental impacts
by stabilizing, contouring, resloping and revegetating various portions of a
site once mining and mineral processing operations are completed. These
reclamation efforts are conducted in accordance with detailed plans which have
been reviewed and approved by the appropriate regulatory agencies. Reclamation
activities commenced at the San Juan site during 1997. See "Item 2 -
Environmental Matters".
Permitting
- ----------
Permitting is a continuing process, and as the Company expands, it regularly
amends its existing permits and obtains new permits. The Company believes it has
obtained all permits necessary for its current operations. The Company's ongoing
costs for environmental compliance, estimated to be $120,000 annually, encompass
primarily water monitoring. See "Item 2 - Description of Properties - San Juan".
Insurance
The business of gold mining is subject to certain types of risks, including
environmental hazards, industrial accidents, and gold bullion theft. The Company
carries insurance against property damage and loss, comprehensive general
liability, and losses from theft of gold and goods in transit. While the Company
maintains insurance consistent with industry practice, it is not possible to
ensure against all risks associated with the mining business, and no assurance
can be given that insurance will continue to be available at a reasonable cost.
Competition
The Company competes with other mining companies in connection with the
acquisition of gold properties. There is significant and increasing competition
for the limited number of gold acquisition properties, with some companies
having substantially greater financial resources than the Company. As a result,
in the future the Company may be unable to acquire attractive gold mining
properties on acceptable terms. The Company believes no single company has
sufficient market power to affect the price or supply of gold in the world
market.
Employees
There were 9 and 48 full time employees as of December 31, 1997 and 1996
respectively. At December 31, 1997, 8 were engaged in operations and 1 in
administration and finance. Currently the company has 2 full time employees.
Item 2. Description of Properties
San Juan, Nevada County, California
The San Juan Mine, owned 100% by Siskon, is located approximately 70 miles
northeast of Sacramento, in Nevada County, California near the towns of Grass
Valley and Nevada City. The property covers approximately 2,000 acres, owned by
the Company, with access by paved road.
The deposit is a thick, flat lying bed of cemented conglomerate containing
native gold and is a remanent of a sixty million year old paleoplacer. The
property has been mined for gold on and off since 1850. Drilling campaigns
conducted by the Company and prior owners, comprising over 324 exploration holes
and totalling 152,000 lineal feet, defined a geologic resource containing
approximately 908,000 ounces of gold. Subsequently, a geologic resource was
defined for an open pit mine of 506,000 ounces of gold on a portion of the
property. The Company has identified a high grade zone which is indicated to
contain 3,174,424 tons of ore at a grade of 0.092 ounce of gold per ton. Using
metallurgical recoveries projected at 96% and gold fineness of 92% the zone is
estimated to contain 257,707 fine ounces of gold. Grades at the San Juan Mine
are discussed in terms of tons whereas they were previously shown in bank cubic
yards. Based on drilling results, 1.57 tons of ore from the San Juan Mine is
equivalent to one bank cubic yard.
<PAGE>6
Siskon acquired a 30% interest in the property in 1985 and acquired the
remainder of the mine in 1992 from Battle Mountain Gold Company for cash and
common stock totaling $5.5 million. In connection with the acquisition the
Company issued a $3 million convertible note to the Seamans secured by the
property. In 1993, the Company granted a 2% NSR royalty in the San Juan property
to Callahan Mining Corporation in connection with acquiring certain used mining
equipment.
In 1991, Pincock, Allen & Holt ("PAH"), international resource consultants,
completed a feasibility study, based on underground mining of a portion of this
deposit, which identified a proven/probable reserve of 257,707 ounces of gold
that could potentially be extracted at a projected cash cost per ounce of $195.
Such costs are based on an initial annual production of 392,500 tons of ore
yielding an average of 31,000 ounces of gold increasing to 588,750 tons yielding
an average of 40,000 ounces annually. Siskon completed additional engineering
studies that indicated an additional resource of 50,000 ounces of gold in some
of the thicker areas of the ore body may exist. The engineering studies for
these areas were not completed at the time the PAH study was prepared. However,
the Company anticipated lower levels of production in the earlier stages with
corresponding higher cash costs per ounce. See "Item 6 - Management's Discussion
or Plan of Operations".
The Company prepared and filed permit applications to mine the San Juan Property
in 1992 and received the necessary permits in June 1993. Since receiving the
permit, the access decline, surface buildings, shops, surface plant, settling
ponds, roads and electric utility services, drainage and ventilation tunnels,
underground plant and main underground haulage ways have been constructed and
installed.
Total pre-production development costs and related plant and equipment amounted
to $19.8 million net of gold recoveries of $3.7 million. The increase in
development costs from the Company's original estimate of $8.3 million are
primarily attributable to the delay in the construction of the access tunnel
resulting from unforeseen unfavorable rock conditions with a commensurate
extended period of mine support, equipment maintenance and mine administration.
Additional power delivery facilities were constructed and mining equipment was
purchased that were originally anticipated after production commenced. Delays
were incurred to reinforce most of the underground roads with crushed rock and
to install larger dewatering pumps as a result of additional ground water
flowing into the mine. The difficulty in obtaining qualified and experienced
miners resulted in greater than expected training costs and has required longer
periods of on the job training both of which have delayed the attainment of
expected levels of productivity. Also, the majority of the development work for
the underground workings did not occur in the high grade zones. Since the start
of construction of the San Juan Mine, the Company has improved or replaced
twelve domestic wells on property adjacent to the project at a cost of
approximately $108,000. Concerns by neighbors over whether the development of
the mine is adversely affecting their wells were raised at the bi-annual Nevada
County Planning Commission ("Commission") permit review meeting held on December
8, 1995. The Company engaged a hydrologist and presented its report to the
Commission on May 23, 1996. The report indicated that the development had
affected those twelve wells but that future dewatering activities at the mine
should not have an adverse effect on any other adjacent wells. Nevada County has
increased the remedial water supply bonds by $135,000 to $189,000 and required
that the Company continue to replace or improve any other impacted wells
adjacent to the property. On December 19, 1996, the Commission found that the
mine was in compliance with its operating permit. No assurance can be given,
however, that in the event the future operations of the Mine is determined to
adversely affect surrounding neighbors' wells the Commission will allow the
Company to continue to address such concerns through replacement wells,
additional conditions to San Juan's operating permit, or increases in bonds.
During March 1998 a homeowner filed a lawsuit against Siskon alleging the water
quality of their well was affected by Siskons operations (see current
litigation).
On November 14, 1995 the California Regional Water Quality Control Board issued
a letter to the Company concluding that the volume of water being discharged
from the San Juan Mine was in excess of the permitted amount and on January 7,
1996 the Company received an interim dewatering permit. Subsequently, an area of
high water flow into the mine was sealed off and other remediation steps were
taken which the Company believes have brought the discharges of water from the
mine into compliance with the original permit. To meet the long term potential
discharge requirements of the Mine, the Company applied for and received on
January 24, 1997, an amendment to its permit allowing increased volumes of water
to be discharged from the Mine.
With the completion of construction and development activities and attainment of
sustained levels of production at the mine in mid-May 1996, the Company
commenced the recognition of revenues, production costs, non-cash costs and
royalties in operations. During 1996, 145,611 tons of ore were mined producing
9,651 ounces of gold of which 84,034 tons yielding 4,648 ounces of gold have
been reflected in operations. In 1997 46,128 tons were mined yielding 3,967
ounces of gold.
In the fourth quarter of 1996, as a result of recent declines in the gold price
combined with higher than anticipated
<PAGE>7
operating costs, the Company determined that it may not recover its investment
in the San Juan mine over the life of the property and accordingly reduced the
carrying value of this property by $10,295,517.
In early May 1997 the Company suspended mining operations at the San Juan Mine
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.
Since the cessation of mining operations, the price of gold has declined to the
$290 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 the existing property
into a care and maintenance basis. A write down of the carrying value of
development costs and mineral properties of $2,074,162 was made.
At December 31, 1997 the carrying value of the San Juan property was reduced
from its cost, $2,200,000, to its estimated recoverable value of $659,214, at a
write down of $1,540,785. The estimated recoverable value is based on an
independent, outside appraisal.
Big Horn, Los Angeles County, California
The Big Horn Mine, 100% owned by Siskon, is located approximately 40 miles east
of Los Angeles, California and 6 miles from the town of Wrightwood. The property
comprises 278 acres owned by the Company and 3 unpatented mining claims covering
60 acres with access by state highway and a 1.5 mile dirt road.
The Big Horn deposit is a thick vein type deposit that dips at a shallow angle
and was worked intermittently in the 1890's and 1930's as an underground gold
mine and was acquired by the Company in 1961.
From 1990 to 1992, the Company conducted underground diamond drilling programs
and contracted with PAH to conduct an independent feasibility study of the
project which was completed in 1993. According to PAH, the Big Horn deposit has
mineralized material delineated by drilling of 3,710,080 tons containing 434,079
ounces of gold. Within this material is a proven/probable reserve of 1,211,440
tons containing 188,137 ounces of gold that the study estimates can be produced
at a cash cost per ounce of $208. Annual production was forecasted at 275,000
tons yielding approximately 39,000 ounces of gold. The PAH study assumes a 15%
dilution from material grading approximately one-half of reserve grade, a 92%
recovery from mining and a 92% recovery from processing. The proven/probable
reserves have not been adjusted for the effects of dilution and recovery rates.
Projected pre-production capital costs are estimated at $13.7 million.
In addition to the proven/probable reserves, PAH reported that within the
mineralized material there is another 662,392 tons containing an estimated
101,458 ounces of gold that had been drilled at wider intervals. It is the
opinion of PAH that a substantial part of this additional tonnage will be added
to the proven/probable reserves after additional sampling. The PAH report also
states that there is good potential for the discovery of significant additional
tonnage of ore grade mineralization in other areas.
The proposed plan to mine the Big Horn property calls for underground mining
with a modified room and pillar method which accounts for the favorable
projected mining costs. Power is anticipated to be generated at the mine and
obtained from local utilities at the processing plant. The mine is located in
steep, rugged terrain adjacent to the Sheep Mountain Wilderness area and each
stage of the mine plan is designed to have minimal environmental impact.
The processing plant will be built off-site and the ore will be trucked to the
site for processing. The Company is currently evaluating potential mill sites
for which environmental permits will have to be obtained. A site located in the
City of Adelanto that was purchased in March 1995 has been quit claimed to the
sellers.
Based on the results of the PAH study, the Company has begun environmental
permitting for the Big Horn property and the major permits are in place. Air
quality permits to construct power generation facilities at the mine were issued
at the end of March 1995 and water quality permits were issued in June 1995.
During 1997, the price of gold has declined to the $290 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 at Big Horn, 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.
<PAGE>8
Consequently, the Company has decided to put Big Horn into a care and
maintenance basis. A write down of the carrying value of development costs and
mineral properties of $814,602 was made.
As of December 31, 1997, the carrying values of the Big Horn property consisted
of land of $365,126.
Other Properties
The Company also owns the following properties: Gold Point consisting of 18
unpatented claims located in Sierra County, California, Gray Eagle consisting of
16 patented claims located in Siskiyou County, California, Argonaut consisting
of 15 unpatented claims located in Baker County, Oregon and Iron Creek
consisting of 7 patented and 35 unpatented claims located in Lemhi County,
Idaho.
The Gold Point Mine was acquired in 1991 and covers approximately 360 acres.
Drilling and exploration carried out by previous owners in 1989 indicated a
geologic resource of 244,000 tons grading 0.22 ounce per ton of gold.
In October 1995, the Company leased the Humbolt Starlight property to Pegasus
Gold Corporation. The lease provided for an annual minimum lease of $6,000 with
a 3% NSR royalty up to $262,000, a 2% NSR royalty on the excess up to $1 million
and a 1% NSR royalty thereafter. In August 1997, Pegasus Gold Corporation
purchased the Property for $40,000.
In October 1995, the Company leased the Iron Creek property to Cominco American
Incorporated ("Cominco"). The lease provided for a $15,000 payment at inception
and an annual minimum of $12,000 in the first year, increasing $12,000 a year to
$60,000 in the fifth through the ninth year and $100,000 thereafter. The lease
provided for the greater of a 3% NSR royalty or a 12% NPI royalty. Cominco had
an option to purchase two-thirds of the royalty (2% NSR or 9% NPI) for $5
million and has a work commitment for a maximum of $1 million over ten years
which is allowable on adjacent properties. Cominco canceled the lease in the
second quarter of 1997.
Lease income for 1997 was $8,000 from the Iron Creek property. As of December
31, 1997, the carrying value of the properties amounted to $95,000 attributable
to Gold Point. The Company has no present plans to pursue exploration of these
properties in 1998.
Other Interests
The Company also owns the following interests: 2% NSR royalty interest in the
Siskon Mine located in Siskiyou County, California, a 2.5% NSR royalty interest
in the Pine Flats property located in Humboldt County, California and a 0.8% NSR
royalty interests in the Mother Lode and Bullfrog properties located in Nye
County, Nevada. Oil and gas royalty interests ranging from 3% to 5% located in
Ponderosa and Teton Counties, Montana were sold March 14, 1997 for $17,500 in
cash. The 1.25% NSR royalty and 600 acres of land in the Aurora/Humbolt West
properties were sold in October of 1997 for $100,000, and the 10% NPI royalty
interest in the Hilltop property was sold in December 1997 for $10,000.
Royalty income for 1997 was $51,416 from the Aurora and Montana properties which
will cease in 1998 reflecting the sale of these properties. As of December 31,
1997 there was no recorded book value for these interests.
Environmental Matters
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. On September 23, 1997 the CAL RWQCB
issued a tentative cleanup and abatement order 97-116 for the Old Grey Eagle
tailings disposal site naming the companies whoever operated the Grey Eagle Mine
and disposed the mine tailings at the site and mine subsequent owners of the
property including the Company. Comments are due by October 15, 1997. The
Company intends to seek indemnification from the prior owners and operators of
the property.
In March 1997 an action in U.S. District Court was brought against the Company
<PAGE>9
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. In April 1997 the Company notified
Noranda Grey Eagle Mines, Inc. ("Noranda") of Noranda's obligations to defend
Siskon pursuant to the indemnity agreement between the parties. On August 11,
1997 Noranda brought an action in US District court for the Eastern District of
California, Case number CIV-S 97-1486 WBS 166H, Seeking declaratory relief from
such indemnity and granted an extension until November 15, 1997 for Siskon to
file its response. On October 22, 1997 CALSPA dismissed without prejudice its
action against the Company.
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.
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 detailed in above. 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.
Item 3. Legal Proceedings.
In May 1997, Joseph Sullivan, 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. In March of 1995, the 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.
In March of 1998 attorneys representing homeowner Kathleen Kerrigan, filed a
lawsuit in Nevada County Superior court, complaint number 59860, against Siskon
alleging the water quality of their well was affected by Siskons operations. The
plaintiff has asserted that on or about September 1, 1995 the properties
domestic water wells were depleted of water, causing deterioration of the
quantity and quality of water available. The plaintiff further asserts that as a
result of the impacted well there have been losses due to damage of personal
property and general damages. The plaintiff is suing for general and other
damages.
<PAGE>10
Other than the matters discussed herein under "Environmental Matters" and "Legal
Proceedings" neither Siskon nor its subsidiary was involved in any legal
proceedings, nor is any property of Siskon the subject of any legal proceedings
that may have a material impact on the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market for Common Equity and related Stockholder Matters.
(a) Comparative Market Prices
Siskon Gold Class A common stock had been listed on the NASDAQ National Market
System ("NMS") under the symbol "SISK" from August 26, 1991 to April 18, 1997.
Because the Company could not continue to meet the NASDAQ listing criteria as
amended in 1996, the Company's Class A Common stock is now quoted on the OTC
Bulletin Board. The following tables set forth the high and low closing sale
prices, as reported by the NASDAQ and the OTC Bulletin Board, for Siskon Class A
common stock for the quarters indicated. The high and low closing bid quotations
shown reflect inter-dealer quotations and do not necessarily represent actual
transactions. None of the prices shown reflect retail mark-ups, mark-downs or
commissions.
Common Stock-Class A
High Low
1996 1st Quarter 3.75 1.88
2nd Quarter 2.63 1.75
3rd Quarter 2.44 1.50
4th Quarter 2.06 0.69
1997 1st Quarter 0.906 0.219
2nd Quarter 0.281 0.045
3rd Quarter 0.45 0.020
4th Quarter 0.125 0.006
(b) Holders
On June 30, 1998, there were 32,194,633 shares of Siskon Class A Common Stock
outstanding, held by 2,167 holders of record, 638 shares of Series 1 Class B
common stock outstanding, held by 1 shareholder of record and 241 shares of
Series A convertible preferred stock held by 1 shareholder of record.
(c) Dividends
Siskon has not paid or declared dividends upon its common stock since its
inception and by reason of its anticipated financial requirements, does not
contemplate paying any dividends on its Class A common stock in the foreseeable
future.
Item 6. Management's Discussion and Analysis or Plan of Operation
(a) Plan of Operation
The Company's ability to continue regular corporate activities and to continue
as a "going concern" over the foreseeable future is 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 and low gold prices, mining operations 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
<PAGE>11
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 continue
operations for the long term. 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. Siskon is required to pay
certain costs, including property taxes, associated with the San Juan and Big
Horn properties in compliance with the terms of the loans to the long term debt
holders. Siskon is currently in arrears with respect to the property taxes at
the San Juan and Big Horn. There is no assurance Siskon can get current or stay
current with respect to the costs associated with the loans and therefore a
default notice could be filed by the debt holders. There is no assurance Siskon
could cure the default and that could result ultimately in a notice of
foreclosure. Siskon will strive to maintain a corporate presence as long as
possible in hopes for improved gold prices. The Company owes approximately
$9,141,927 as of December 31, 1997, secured by the San Juan Mine and Big Horn
Mine. Pursuant to the terms of the loans, all principal and accrued interest
will mature on November 15, 1998. The Company currently has insufficient capital
to re-pay these loans and is not likely to have the ability to re-pay these
loans on the maturity date. Consequently, the Company anticipates that the
secured lenders will initiate foreclosure on the properties and the company will
likely forfeit its ownership interest in the properties to the secured lenders.
(b) Financial Condition and Results of Operations
Siskon had cash on hand of $69,431 at December 31, 1997.
Cash used by operating activities in 1997 totalled $2,748,428.
Cash used in investing activities during 1997 totalled $1,328,725. During 1997,
$24,256 was expended on development costs, $30,906 on equipment. Cash provided
from investing activities during 1997 totalled $1,268,864 from the sale of
mineral rights, mining equipment, land and note collections and $115,023
returned from bonds.
Cash flows from financing activities during 1997 totalled $676,528. During 1997
$915,874 was received from equipment debt and $370,621 was received from the
issuance of convertible debt. During 1997 payments of capital lease obligations
and debt amounted to $575,795 and registration and other issuance costs of
$34,172.
In May 1996 the Board of Directors determined that the proceeds received in a
November 1995 private placement to Vengold had been fully expended, the two
directors appointed by Vengold resigned and the Board dissolved the Budget
Committee. In August 1996 Vengold converted the 39,062.5 shares of Class B
Series 2 common stock into 781,250 shares of Class A common stock.
In May 1996 the Company borrowed $500,000 from Carl Seaman, a shareholder and
holder of a majority of existing convertible debt. The loan is collateralized by
the San Juan and Big Horn mines, is due November 15, 1998 and bears interest at
ten percent with the principle and interest convertible into Class A common
stock at $1.75 per share. In connection with the loan Mr. Seaman was granted the
right to convert $500,000 of the Seamans' existing convertible debt into Class A
common stock at $1.75 per share as well. If a private placement is completed
prior to November 15, 1998 at a price below $1.75 per share, Mr. Seaman would
have the right to change the conversion price of his new note to the same as
that under the private placement.
The Company's San Juan Mine and Big Horn Mines are pledged as collateral to the
Company's secured creditors, the company has considered filing bankruptcy,
however 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. Siskon is
required to pay certain costs, including property taxes, associated with the San
Juan and Big Horn properties in compliance with the terms of the loans to the
long term debt holders. Siskon is currently in arrears with respect to the
property taxes at the San Juan and Big Horn. There is no assurance Siskon can
get current or stay current with respect to the costs associated with the loans
and therefore a default notice could be filed by the debt holders. There is no
assurance Siskon could cure the default and that could result ultimately in a
notice of foreclosure. For further details to the convertible debt see note 9 to
the financial statements.
<PAGE>12
On October 17, 1996 the Company borrowed $1,150,000 through the issuance of a
convertible debenture bearing interest at 8% and a maturity date of October 1,
1998. The principle plus accrued interest may be converted into shares of Class
A common stock at a conversion price equal to the lesser of (a) the market price
of the common stock on October 17, 1996, or (b) seventy five percent of the
market price if the conversion is before January 25, 1997 or seventy percent of
the market price if the conversion is after January 24, 1997. 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. 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. During 1996, $200,000 of principle was converted into
303,576 shares of Class A common stock. During 1997 the remaining principle of
$959,000 and accrued interest was converted into 5,301,289 shares of Class A
common stock.
On November 18, 1996, the Company borrowed $500,000 through the issuance of
convertible debt bearing interest at 8% and a maturity date of January 1, 2000.
Principal, plus accrued interest, may be converted into shares of Series A
convertible preferred stock at a conversion price of $1,000 per share. One third
of these debentures are convertible into shares of Class A common stock after
January 24, 1997, one third after February 13, 1997 and the remaining one third
after March 5, 1997. The number of shares of Class A common stock issuable upon
the conversion of the Series A convertible preferred stock is determined by
dividing the number 1,000 by seventy five percent of the average bid price of
the Class A common stock over a ten day trading period immediately preceding the
conversion date. The debenture may be prepaid, without penalty, anytime after
one hundred eighty days from the date of issue. Likewise, the Series A
cumulative preferred stock may be redeemed by the Company at its liquidation
value of $1,000 per share, plus accrued dividends. Dividends on the Series A
cumulative preferred stock accrue at eight percent per annum and are cumulative.
At maturity, any remaining debentures or preferred stock automatically convert
into shares of Class A common stock at the conversion price set forth above. So
long as any debenture or any share of Series A cumulative preferred stock
remains outstanding, the holder may not, directly or indirectly, initiate or
maintain any short position in the securities of the Company. The Company agreed
to issue this series of 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. On March 7, 1997 all of the debentures
and accrued interest amounting to $511,111 were converted to 512 shares of
Series A convertible preferred stock and during 1997 241 shares of the preferred
stock thus issued were converted into 4,700,796 shares of Class A common stock.
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 1997 the notes in the amount of $450,000 and accrued interest were
converted into 10,267,786 shares of Class A Common Stock.
Siskon incurred a net loss of $17,617,187 for 1997.
Commencing in mid-May 1996, revenues, production costs, non-cash costs and
royalties at the San Juan Mine were reflected in operations. During 1995
production costs were capitalized as the Company's operations were in the
development stage and gold revenues received were credited against capitalized
costs. During 1997 revenues of $1,204,475 resulted from 3,483 ounces of fine
gold at an average price of $345 per ounce. Production costs, non-cash costs and
royalty expense totalled $1,800,618, $648,020 and $23,694 respectively.
In the fourth quarter of 1996, as a result of recent declines in the gold price
and higher than expected operating costs, the Company determined that it may not
recover its investment in the San Juan Mine over the life of the property and
accordingly reduced the carrying value of the property by $10,295,517. In early
May, 1997 the Company suspended mining operations at the San Juan Mine 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.
Since the cessation of mining operations, the price of gold has declined to the
$290 per ounce level and there is no assurance that gold prices will recover to
<PAGE>13
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. A write down of the carrying value of
development costs and mineral properties of $2,888,764 was made. In November
1997 the Company entered into a contract with an equipment liquidation company
who have guaranteed to sell the mobile mining equipment. 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.
In August 1997, the Company received $40,000 cash for the sale of timber on the
Gray Eagle property. In July 1996, the Company sold for $450,000 cash the
merchantable timber on the San Juan property which must be harvested in three
years.
The note receivable collateralized by the Comstock property amounting to
$275,326 was in default. In September 1997, the Company agreed to discount the
note and received $100,000.
General and administrative expenses were $1,625,537 for 1997. The increase is
primarily due to compensation expenses relating to termination of employment
contracts.
Exploration costs were $118,059 for 1997. Related to legal costs on the Gray
Eagle property.
The loss on sale of property and equipment was $241,008 during 1997.
Interest and miscellaneous income was $47,233 for 1997 reflecting lower cash
balances during 1997.
Interest expense in 1997 amounted to $1,332,240. The increase in expense is
primarily due to $352,171 capitalized in the first quarter of 1996.
The Company believes that its business and operations were not materially
affected by inflation during 1997 and 1996.
Item 7. Financial Statements.
The Consolidated Financial Statements of Siskon Gold Corporation and Subsidiary
are attached at the end of this document.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures.
On November 5, 1997 the Company's principal independent accountants, Coopers &
Lybrand L.L.P. ("Coopers & Lybrand"), resigned. The reports of Coopers & Lybrand
on the Company's financial statements for the years ended December 31, 1995 an
1996 did not contain an adverse opinion or disclaimer of opinion or
qualification of modifications as to uncertainty, audit scope or accounting
principles. During the relationship between the Company an Coppers & Lybrand
there were no disagreements regarding any matters with respect to accounting
practices, financial statement disclosure, or audit scope or procedure, which
disagreements, if not resolved, would have caused Coopers & Lybrand to make
reference to the subject matter of the disagreement in connection with its
report. The change in accountant was not recommended nor approved by the
Company's Board of Directors or any committee of the Board of Directors.
On May 12, 1998, the registrant engaged Lund & McSweeney as its independent
accountants as a result of the resignation of Coopers & Lybrand, LLP. The
engagement was approved by the Company's Board of Directors. During the
registrants' two most recent fiscal years and subsequent period, there were no
disagreements on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure.
<PAGE>14
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
compliance with Section 16(a) of the Exchange Act of the Registrant
There are three members of the Board of Directors. On March 31, 1997, Charles A.
Snead, Jr. resigned, on April 7, 1997 the Board elected David A. Lawler to the
board, and on August 15, 1997 Michael K. Epstein resigned.
The following table sets forth the persons on the Board of Directors.
DIRECTOR AGE DIRECTOR SINCE
Timothy A. Callaway 46 1990
Scott E. Bartel 41 1993
David A. Lawler 47 1997
Background of Directors
Timothy A. Callaway. Since September 1991, Mr. Callaway has served as the
President, Chief Executive Officer, and a Director of Siskon, and, since June
1994, as Chairman of the Board of Directors. From June 1992 to March 1994, he
served as Chief Financial Officer of Siskon. From September 1990 to September
1991, he served as President, Chief Executive Officer, and a Director of both
Centurion Gold Ltd. and U. S. Precious Metals, Inc., predecessors to Siskon.
Previously, Mr. Callaway was employed by Battle Mountain Gold Company as
President and Chief Executive Officer of its exploration and development
subsidiary, Sierra Gold Development, from August 1987 until August 1989.
Scott E. Bartel. Mr. Bartel has served as a Director of Siskon since April 1993.
Currently, and for more than the previous five years, Mr. Bartel has been a
founding shareholder of the law firm of Bartel Eng Linn & Schroder, Sacramento,
California.
David A. Lawler. Mr. Lawler is currently, and has been for more than the
previous five years, a principal of Lawler and Associates, a geoscience
consulting firm based in Berkeley, California, specializing in evaluating
precious metal deposits. Mr. Lawler was previously a director of the Company
from 1992 to 1995.
Directors' Compensation and Stock Grant Plan
All Directors of Siskon initially receive $10,000 of Class A common stock for
serving as Directors and thereafter each Director receives $10,000 of Class A
common stock per year pursuant to the Siskon Directors Stock Grant Plan. Each
non-employee Director also receives $500 per meeting attended. In addition,
members of the Board's Stock Option and Compensation Committee receive options
to purchase 1,500 shares of Class A common stock upon completion of each full
year of service on such Committee. The members of the Audit Committee receive
$500 per meeting attended not held concurrently with a Director's Meeting.
The following table sets forth certain information with respect to the Executive
Officers of Siskon.
NAME POSITIONS WITH SISKON AGE OFFICE HELD SINCE
Timothy A. Callaway President 46 1990
Chief Executive Officer
Chairman of the Board
of Directors
Executive Officers are elected annually by the Board of Directors and serve at
the pleasure of the Board. There is no family relationship between any of the
Officers or Directors. For the background for Mr. Callaway, see "Background of
Directors" above.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires Siskon's
Directors, Executive Officers, and persons who own more than 10% of Siskon's
outstanding Class A common stock to file reports of ownership and changes in
ownership with the SEC. Directors, Executive Officers, and shareholders of more
the 10% of Siskon's Class A common stock are required by SEC regulations to
furnish Siskon with copies of the Section 16(a) forms they file.
<PAGE>15
Based solely on a review of the copies of such forms furnished to Siskon, or
written representations that such filings were not required, Siskon believes
that, during the calendar year 1997, all Section 16(a) filing requirements
applicable to its Directors, Officers, and shareholders of more than 10% of
Siskon Class A common stock were complied with.
Item 10. Executive Compensation
Executive Compensation
The following table sets forth the aggregate cash compensation paid for the past
three years for services of Timothy A. Callaway. No other executive officers of
Siskon received total compensation in 1997 in an amount exceeding $100,000.
<TABLE>
SUMMARY COMPENSATION TABLE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long Term Compensation
Annual Compensation Awards Payouts
------------------- ------ ----------
Other
Annual Restricted Securities
Compensa- Stock Underlying LTIP All Other
Name and Principal tion Award(s) Options Payouts Compensa-
Position Year Salary Bonus ($) ($) (#) ($) tion
Timothy A. Callaway1997 $969,715(1) $0 0 $0 $0
CEO, President and 1996 $227,935 $4,320 $10,000(2) $0 0 $0 $0
Chairman of the 1995 $208,705 0 $10,000(2) $0 0 $0 $0
Board
</TABLE>
(1) Reflects severance costs of $791,000.
(2) Represents $10,000 worth of shares of Class A common stock
earned for serving as a director.
Employment Agreements
Mr. Callaway serves as President, Chief Executive Officer, and Chairman of the
Board of Directors. Mr. Callaway's Employment Agreement dated October 8, 1991
and amended on February 12, 1993 provides for compensation equal to $150,000 per
year, subject to annual cost of living increases equal to 7% of base salary
until December 31, 1995, and thereafter to be reviewed by the Board of
Directors. The term of Mr. Callaway's Employment Agreement is unstated and may
be terminated upon 60 days' notice by Mr. Callaway or by Siskon with or without
cause. In the event Mr. Callaway is terminated by Siskon without cause, Mr.
Callaway is entitled to receive severance pay equal to four years of his annual
salary. In addition, the Employment Agreement provides that in the event Mr.
Callaway is terminated other than "for cause" within six months of a change of
control, Mr. Callaway shall be paid an amount equal to five years of his annual
salary. Further, if, within two years of a change of control, Mr. Callaway
determines, in his sole discretion, that the policies and procedures of the
Board of Directors are unacceptable, upon Mr. Callaway's resignation, Mr.
Callaway shall be paid an amount equal to his annual salary. The phrase "change
of control" is defined to include (i) the issuance of 33% or more of the
outstanding securities to any individual, firm, partnership, or entity, (ii) the
issuance of 33% or more of the outstanding securities in connection with a
merger, (iii) the acquisition of Siskon in a merger or other business
combination, or (iv) the sale or transfer of 50% or more of Siskon's assets or
earning power. Mr. Callaway's agreement was terminated August 15, 1997 and Mr.
Callaway was paid a discounted amount of $791,000 as severance, versus $816,000
pursuant to the contract.
Siskon Stock Option Plan
The Siskon Stock Option Plan (the "Stock Option Plan") was approved by Siskon's
stockholders in August 1991 and amended in June 1993 and June 1994. A total of
660,500 shares have been approved for issuance and are subject to options under
the Stock Option Plan.
The Stock Option Plan permits the grant of stock options to employees, officers,
and certain directors. The purpose of the Stock Option Plan is to attract the
best available personnel to Siskon and to give employees, officers, and certain
directors of Siskon a greater personal stake in the success of the business.
The Stock Option Plan is administered by the Stock Option and Compensation
Committee, which determines the recipients of options and the terms of options
granted, including the expiration date, exercise price, number of shares subject
to the options, and vesting requirements, if any. The exercise price of all
stock options granted under the Stock Option Plan must be at least equal to the
fair market value of such shares on the date of grant, and
<PAGE>16
the term of the stock options may be up to five years for all participants who
are members of the Stock Option and Compensation Committee and up to ten years
for all other participants.
Upon completion of each full year of service on the Stock Option and
Compensation Committee, each member of such Committee is granted options to
purchase 1,500 shares of Class A common stock, at an exercise price equal to the
closing price of such common stock on the last business day of the calendar
year.
During 1997 no options were granted.
In 1997 Mr. Callaway's options expired and he held no options at the end of the
year.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of June 30, 1998, certain information with
respect to the beneficial ownership of shares of Siskon Class A and Series 1
Class B common stock by all shareholders known by Siskon to be the beneficial
owners of more than five percent of the outstanding shares of such common stock,
all Directors and Executive Officers of Siskon individually, and all Directors
and all Executive Officers of Siskon as a group. As of June 30, 1998, there were
32,194,633 shares of Class A common stock, 638 shares of Series 1 Class B common
stock outstanding.
No. of Shares
Name Common Stock(1) Percent
Class A Common Stock(1)
------------------------
Carl Seaman 1,685,569(2) 5.05%
12 The Poplars
Roslyn, NY
Linda T. Seaman 1,669,324(3) 5.07%
12 The Poplars
Roslyn, NY
Vengold, Inc. 1,409,960(4) 4.22%
200 Burrard Street, Suite 1788
Vancouver, Canada
Income Partnership of America, LTD 20,158,518(5) 38.51%
35 Levery Street
Birmingham, England
Timothy C. Callaway, President 98,835 *
Chief Executive Officer and
Chairman of the Board
Scott E. Bartel, Director 6,000(6) *
David A. Lawler 300 *
All Directors and Executive Officers 105,135(7) *
as a group (3 persons)
Series 1 Class B Common Stock(1)
Charles D. Snead, Jr. 638 100.0%
Footnotes To Table
* Less than one percent.
(1) Except as indicated in the footnotes to this table, the persons named
in the table have sole voting and investment power with respect to all
shares of Siskon Class A or Series 1 Class B common stock shown as
beneficially owned by them, subject to community property laws where
applicable.
(2) Carl Seaman and Linda Seaman are husband and wife. Mr. and Mrs. Seaman
own $4.2 million of convertible note which is due November 15, 1998.
The note is convertible into Class A common stock at $1.75 per share.
Interest on the note through November 15, 1997, is paid annually in
Class A common stock at $3.50 per share. Interest on the note through
November 15, 1997, is paid annually in Class A common stock at $2.56
per share. Mr. Seaman also owns a $500,000 convertible note which is
due November 15,
<PAGE>17
1998. The note is convertible into Class A common stock at $1.75 per
share. Interest on the convertible note through November 15, 1997, is
paid annually in Class A common stock at $1.75 per share. Mr. Seaman
has the right to convert $500,000 of the existing convertible debt
into Class A common stock as well. Jordan Seaman and Dana Manning, the
Seaman's children, each own a $345,998 note which is convertible into
Class A common stock and the shares underlying the notes held by the
Seamans' children have not been attributed to Mr. Seaman. As reported
on Schedule 13D filed with the SEC, Mr. and Mrs. Seaman each have an
independent right to convert up to one-half of the convertible portion
of the note into Class A common stock. SEC Rule 13d-3(d) states that
beneficial ownership includes all shares which the beneficial owner
has the right to acquire within 60 days. Consequently, the amount
shown for Mr. Seaman includes 1,197,560 shares of Class A common
stock, the amount which he would have the right to acquire pursuant to
such conversion including accrued interest through June 30, 1998. The
amount shown for Mr. Seaman also includes 73,666 shares of Class A
common stock owned by Carl & Associates, a general partnership of
which Mr. Seaman owns an 80% equity interest and the remaining 20%
interest is owned by his children. Mr. Seaman disclaims beneficial
ownership of the 14,733 shares of Class A common stock attributed to
the 20% interest in Carl & Associates. The amount shown does not
include (a) 722,648 shares of Class A common stock which Linda Seaman
has the right to acquire pursuant to the conversion of the note, or
(b) 946,676 shares of Class A common stock owned by Linda Seaman, the
beneficial ownership of which is disclaimed by Mr. Seaman.
(3) The amount shown for Mrs. Seaman includes 722,648 shares of Class A
common stock which she has the right to acquired pursuant to the
conversion right described in footnote (2) including accrued interest
through March 17, 1997. The amount shown does not include any of the
shares shown as beneficially owned by Carl Seaman, the beneficial
ownership of which is disclaimed by Mrs. Seaman.
(4) Vengold Inc. owns a $3 million convertible note which is due November
15, 1998, which is convertible into Class A common stock at $2.56 per
share. Interest on the convertible note through November 15, 1997, is
paid quarterly in Class A common stock at $2.56 per share. SEC Rule
13d-3(d) states that beneficial ownership includes all shares which
the beneficial owner has the right to acquire within 60 days.
Consequently, the amount shown for Vengold includes 1,249,106 shares
of Class A common stock, the amount which Vengold would have the right
to acquire pursuant to such conversion including accrued interest
through June 30, 1998.
(5) Income Partnership of America, LTD owns 241 shares of Series A
convertible preferred stock which is convertible into Class A common
stock at 75% of the average market price for the ten days prior to
conversion. The shares shown reflect the conversion at the current
market price of $0.018 per share.
(6) Includes options to purchase 6,000 shares of Class A common stock.
(7) Includes options to purchase 6,000 shares of Class A common stock.
Item 12. Certain Relationships and Related Transactions
On November 15, 1995, Siskon completed a private placement with Vengold Inc.
Siskon received $5 million from the private placement which is comprised of $2
million for 39,062.5 shares of Siskon's Series 2 Class B common stock, $3
million principal convertible debt, warrants to purchase 2 million shares of
Class A common stock at $3.50 which expired on December 31, 1996 and warrants to
purchase an additional 2 million shares of Class A shares at $4.00 which expired
on November 15, 1997. The Series 2 Class B shares convert at the rate of 20
shares of Class A shares for each Series 2 Class B share. The $2 million Series
2 Class B shares equates to $2.56 per Class A share. The Series 2 Class B shares
have the same rights as the Class A shares except that the Series 2 Class B
shareholders have the right to elect two Directors to the Board of Directors. A
Budget Committee of the Board was formed to approve project budgets for the
expenditure of the $5 million. The Committee was comprised of three Directors,
two of which can be appointed by the Series 2 Class B shareholders.
During 1996, the $5 million in proceeds from the Vengold financing were expended
by Siskon, the Budget Committee was dissolved and the two directors appointed by
the holders of Series 2 Class B shares resigned. Furthermore, during 1996, the
holders of Series 2 Class B shares converted all of their shares into 781,250
shares of Class A common stock.
In connection with the Vengold private placement on November 15, 1995, the
Seamans converted $1.8 million of their convertible debt into 707,678 shares of
common stock at $2.56 per share, and agreed to receive interest at 10% per annum
payable in common stock at $2.56 per share for two years and in cash thereafter,
and extend the maturity date of the debt to November 15, 1998. The debt
continues to be secured by the Big Horn and San Juan Mines.
On May 17, 1996, Siskon borrowed $500,000 from Carl Seaman which is
collateralized by the San Juan and Big Horn mines, is due November 15, 1998, and
bears interest at ten percent with the principal and interest convertible into
Class A common stock at $1.75 per share. In connection with the loan, Mr. Seaman
was granted the right to convert $500,000 of the Seaman's existing convertible
debt into Class A common stock at $1.75 per share as well. If a private
placement is completed prior to November 15, 1998, at a price below $1.75 per
share, Mr. Seaman would have the right to change the conversion price of his new
note to the same as that under the private placement.
Mr. Snead, a prior director, was paid $4,875 in 1997 and $47,950 in 1996 for
financial and permitting services provided to Siskon pursuant to his consulting
agreement. Mr. Snead's Contract for Services provides for monthly consulting
fees equal to a minimum of $5,000 per month and the stock compensation paid to
other non-employee Directors. The Contract for Services expired July 1, 1996.
Pursuant to Mr. Snead's original agreement, Mr. Snead purchased 1,000 shares of
Series 1 Class B common stock at $1.00 per share. Each share of Series 1 Class B
common stock is convertible into 100 shares of Class A common stock for every
$25,000 raised in equity or debt
<PAGE>18
financing by, and certain property ventures, acquisitions and leases entered
into by Siskon for a period of two years, and attributed to Mr. Snead's actual
level of involvement or contribution as determined by the Board of Directors
("Vesting Event"). The Series 1 Class B common stock, however, is subject to
repurchase rights by Siskon at $1.00 per share upon a Vesting Event or upon
termination of the Contract for Services. In the event Siskon exercises its
right to repurchase the Series 1 Class B common stock, Mr. Snead will have the
right to receive a percentage of the equity or debt financing proceeds raised by
Siskon and attributed to Mr. Snead. The percentages range from 7% of the first
$1 million to 3% of $5 million or more raised by Siskon. The shares expired on
July 1, 1998.
Mr. Bartel, a director of Siskon, is a shareholder of Bartel Eng Linn & Schroder
which was paid $101,433 in 1997 and $188,749 in 1996 for legal services provided
to Siskon.
David A. Lawler, a director of the Company, is a principal of Lawler and
Associates which was paid $20,247 in 1997 for geological services provided to
Siskon.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Amended and Restarted Articles of Incorporation of Siskon Gold
Corporation (1)
3.2 Bylaws of Siskon Gold Corporation (1)
4.1 Form of 8% Convertible Debenture due February 1, 1999 (10)
4.2 Certificate of Determination for Series A Cumulative Preferred Stock
4.3 Form of 8% Convertible Debenture due January 1, 2000
10.8 Siskon Gold Stock Option Plan (2)
(a) Amendment to the Siskon Gold Stock Option Plan (1)
10.9 Consulting Agreement with Charles D. Snead, Jr. (3)
10.10 Employment Agreement with Timothy A. Callaway (3)
10.16 Placement Agent Agreement (4)
10.17 Unit Purchase Agreement (4)
10.18 Stock, Note and Warrant Purchase Agreement, dated November 15, 1995(5)
10.19 Standstill Agreement, dated November 15, 1995 (5)
10.20 Convertible Note with SJ Gold Holdings Inc., dated November 15,
1995 (5)
10.21 Debt Conversion and Modification Agreement, dated November 15, 1995(5)
10.22 Amended and Restated Convertible Note with Carl and Linda Seaman,
dated November 15, 1995 (5)
10.23 Amended and Restated Convertible Note with Jordan Seaman, dated
November 15, 1995 (5)
10.24 Amended and Restated Convertible Note with Dana Manning, dated
November 15, 1995 (5)
10.25 Mine services agreement with the Doe Run Company, dated March 15,
1996 (7)
10.26 Timber sales agreement (8)
10.27 Convertible note agreement - Cygni S.A. (9)
10.28 Convertible note agreement - Carl Seaman
16.1 Letter on Changes in Certifying Accountants (6)
21.1 List of Subsidiaries
23.1 Consent of Lund & McSweeney, Certified Public Accountants
(1) Incorporated by reference to the Company's registration statement
S-3 filed on December 20, 1993 (File No. 33-73066)
(2) Incorporated by reference to the Company's Form 10-K for the year
ended December 31, 1991
(3) Incorporated by reference to the Company's Form 10-KSB for the year
ended December 31, 1992, as amended on Form 8 on April 30, 1993 and
on Form 10-KSB/A on June 1, 1993 (which conformed the Form 10-K to
a Form 10-KSB)
(4) Incorporated by reference to the Company's Form 10-KSB for the year
ended December 31, 1994 (5) Incorporated by reference to the
Company's Form 10-QSB for the quarterly period ended September 30,
1995 as amended on form 10-QSB/A No. 1 on November 24, 1995
(6) Incorporated by reference to the Company's Form 8-K for October 20,
1994 and filed on October 26, 1994
(7) Incorporated by reference to the Company's Form 10-KSB for the year
ended December 31, 1996.
(8) Incorporated by reference to the Company's Form 10-QSB for the
quarterly period ended June 30, 1996.
(9) Incorporated by reference to the Company's Form 10-QSB for the
quarterly period ended September 30, 1996.
(10) Incorporated by reference to the Company's Form 8-K for February 21,
1997 and filed on February 28, 1997
(11) Incorporated by reference to the Company's Form 10-KSB for the year
ended December 31, 1997.
<PAGE>19
(12) Incorporated by reference to the Company's Form 10-QSB for the
quarterly period ended June 30, 1997.
(13) Incorporated by reference to the Company's Form 10-QSB for the
quarterly period ended September 30, 1997.
(b) Reports on Form 8-K
On February 21, 1997 the Company reported that on February 18, 1997 the Company
borrowed $450,000 through the issuance of a convertible debenture bearing
interest at 8% and a maturity date of February 1, 1999. The principle plus
accrued interest may be converted into shares of the Company's Class A common
stock at a conversion price equal to the lesser of seventy five percent of the
market price of the common stock on February 19, 1997, or the market price 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. The principle amount and accrued interest may be converted after April 5,
1997. At maturity, the Company has the option of repaying the principle and
accrued interest in cash or in shares of common stock using the conversion
prices set forth above. 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.
On November 5, 1997 the Company's principal independent accountants, Coopers &
Lybrand L.L.P. ("Coopers & Lybrand"), resigned. The reports of Coopers & Lybrand
on the Company's financial statements for the years ended December 31, 1995 an
1996 did not contain an adverse opinion or disclaimer of opinion or
qualification of modifications as to uncertainty, audit scope or accounting
principles. During the relationship between the Company an Coppers & Lybrand
there were no disagreements regarding any matters with respect to accounting
practices, financial statement disclosure, or audit scope or procedure, which
disagreements, if not resolved, would have caused Coopers & Lybrand to make
reference to the subject matter of the disagreement in connection with its
report. The change in accountant was not recommended nor approved by the
Company's Board of Directors or any committee of the Board of Directors.
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 October 23, 1998 /s/Timothy A. Callaway
---------------------------------------
Timothy A. Callaway, President, CEO and
Chairman of the Board
(Principal Executive Officer and
Financial and Accounting Officer)
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
/s/Timothy A. Callaway Dated October 23, 1998
Timothy A. Callaway, Director
/s/David A. Lawler Dated October 23, 1998
David A. Lawler, Director
/s/Scott E. Bartel Dated October 23, 1998
Scott E. Bartel, Director
<PAGE>20
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 October ___, 1998
---------------------------------------
Timothy A. Callaway, President, CEO and
Chairman of the Board
(Principal Executive Officer and
Financial and Accounting Officer)
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
Timothy A. Callaway, Director Dated October , 1998
David A. Lawler, Director Dated October , 1998
Scott E. Bartel, Director Dated October , 1998
<PAGE>21
FINANCIAL STATEMENTS
<PAGE>22
FORM 10-KSB - ITEM 7
SISKON GOLD CORPORATION AND SUBSIDIARY
LIST OF FINANCIAL STATEMENTS
The following consolidated financial statements of the Company are included in
response to Item 7:
Independent Auditors' Report -
Lund & McSweeney, Certified Public Accountants.......................23
Consolidated Balance Sheet -
December 31, 1997....................................................24
Consolidated Statement of Operations -
Year Ended December 31, 1997.........................................25
Consolidated Statements of Cash Flows -
Years Ended December 31, 1997 and 1996...............................26
Consolidated Statements of Shareholders' Equity -
Years Ended December 31, 1997 and 1996...............................27
Notes to Consolidated Financial Statements...................................28
<PAGE>23
[NOTE - SUBSTITUTE ORIGINAL SIGNATURE PAGE]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Siskon Gold Corporation and Subsidiary
Grass Valley, California
We have audited the accompanying consolidated balance sheets of Siskon Gold
Corporation and Subsidiary (the Company) as of December 31, 1997, and the
related consolidated statements of operations, shareholders' equity and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits. The consolidated statement of
operation, shareholders equity and cash flows for the year ended December 31,
1996 were audited by others whose report dated March 12, 1997 expressed an
unqualified opinion on those statements with an explanation paragraph describing
conditions relating to a possible violations of the Clean Air Act.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for that opinion.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of Siskon Gold Corporation and
Subsidiary as of December 31, 1997, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 16 to the
financial statements, the Company has ceased all mining activity, written down
its property plant and equipment to net realizable value, liquidated its
operating equipment, moved its corporate office and defaulted on two significant
long term notes payable.
As described in Note 14 to the consolidated financial statements, an action has
been brought against the Company on March 11, 1997, alleging violations of the
Clean Water Act at one of the Company's mine sites the outcome of which is
uncertain at this time, Accordingly, no provision for any liability that may
result from this case has been made in the financial statements.
LUND AND McSWEENEY, CERTIFIED PUBLIC ACCOUNTANTS
Grass Valley, California
October 7, 1998
<PAGE>24
SISKON GOLD CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
----------------------------------------------------------
DECEMBER 31, 1997
1997
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 69,431
Accounts receivable 45,239
Inventories -
Prepaid expenses and other 102,838
--------------
Total Current Assets 217,508
NOTES RECEIVABLE -
PROPERTY, PLANT AND EQUIPMENT, net 1,969,447
OTHER ASSETS 180,919
--------------
TOTAL ASSETS $ 2,367,874
===============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 218,852
Current portion of long-term debt 10,177,992
--------------
($9,147,927 in 1997 to related parties)
Total Current Liabilities 10,396,844
LONG TERM DEBT 14,289
OTHER LIABILITIES 126,582
--------------
Total Liabilities 10,537,715
--------------
COMMITMENTS AND CONTINGENCIES (Note 16)
SHAREHOLDERS' EQUITY (DEFICIT)
Capital Stock
Preferred stock, $.001 par value; issued and outstanding:
Convertible Series A: 241 in 1997 1
Common stock, $.001 par value; issued and outstanding:
Class A: 32,261,289 in 1997 30,792
Convertible Class B Series 1: 638 in 1997 1
Additional paid-in capital 56,170,715
Stock subscription receivable (344,803)
Accumulated deficit (64,026,547)
--------------
Total Shareholders' Equity (Deficit) (8,169,841)
--------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $ 2,367,874
==============
See notes to consolidated financial statements.
<PAGE>25
SISKON GOLD CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
--------------------------------------------------------------------
1997
REVENUES
Gold sales $ 1,204,475
Timber sales 40,000
Royalties and leases 59,416
--------------
Total Revenues 1,303,891
--------------
OPERATING EXPENSES
Production 1,800,618
Depreciation, depletion and amortization 648,020
Mineral property impairment loss 13,179,135
General and administrative 1,625,537
Royalties 23,694
Exploration costs 118,059
--------------
Total Operating Expenses 17,395,063
--------------
OPERATING LOSS (16,091,172)
--------------
OTHER EXPENSE
Loss on sale of mineral rights and equipment (241,008)
Interest expense (1,332,240)
Interest and other income 47,233
--------------
Total Other Expense (1,526,015)
--------------
NET LOSS $ (17,617,187)
==============
NET LOSS PER SHARE $(0.73)
==============
WEIGHTED AVERAGE NUMBER OF SHARES 24,234,855
==============
See notes to consolidated financial statements.
<PAGE>26
SISKON GOLD CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
- ---------------------------------------------------------------------------
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (17,617,187) $ (14,394,185)
Adjustments to reconcile net loss to net
cash used in operating activities
Mineral property impairment loss 13,179,135 10,295,517
Issuance of common stock for services - 50,000
Issuance of common stock for interest 73,973 489,155
Discount on price of stock underlying convertible
debt 282,923 490,647
Accrued interest on convertible debt 804,112 -
Depreciation, depletion and amortization 648,020 794,371
Loss on sale of mineral rights and equipment 241,008 33,315
Accrued interest payable (receivable) (17,991) 2,012
Increase in accounts receivable (41,306) (4,331)
Decrease in inventories 230,875 9,730
Increase (decrease) in prepaid expenses 97,172 (5,127)
(Decrease) increase in accounts payable and
accrued liabilities (554,454) 54,193
Decrease in accrued reclamation costs (74,608) -
------------ -----------
Net cash used in operating activities (2,748,428) (2,184,703)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of mineral rights and equipment 834,972 303,370
Proceeds from sale of land 63,180 -
Collections on notes receivable 370,712 1,078
Purchase of equipment (30,906) (510,949)
Purchase and additions to land - (5,934)
Deferred development costs (24,256) (2,149,827)
Decrease (Increase) in reclamation bonds 115,023 (186,342)
------------ ------------
Net cash used in investing activities 1,328,725 (2,548,604)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from equipment debt 915,874 -
Proceeds from issuance of convertible debt, net
of financing costs 370,621 1,926,059
Payments of obligations under capital leases - (48,964)
Payments of equipment debt (504,718) (501,232)
Payment of land notes payable (71,077) (15,235)
Registration and other issuance costs (34,172) (65,747)
------------ ----------
Net cash provided by financing activities 676,528 1,294,881
------------ ----------
(DECREASE) INCREASE IN CASH (743,175) (3,438,426)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 812,606 4,251,032
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 69,431 $ 812,606
============= ============
Supplemental cash flow disclosure (Note 12) See notes to consolidated financial
statements.
<PAGE>27
SISKON GOLD CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
- -----------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Common Stock Additional Stock Accumulated Total
Paid-In Subscription Deficit
Capital Receivable
------------------------------------------------
Class A Series 2 Class B Series A Amount
Shares Shares Shares Preferred
Balance -
December 31,
1995 10,562,544 39,063 638 - $10,602 $52,690,024 ($317,841) ($32,015,175) $20,367,610
Shares issued
for:
Services 18,850 19 49,981 50,000
Convertible debt 303,577 304 247,391 24 7,695
Interest 323,441 323 808,984 809,307
Conversion of
Series 2 shares (39,063) 742 (65,747) (65,005)
781,250
Accrued interest (8,971) (8,971)
Net loss (14,394,185) (14,394,185)
-------- --------- -------- -------- --------- -------------- ------------ -------------- ------------
Balance -
December 31,
1996 11,989,662 - 638 - 11,990 53,730,633 (326,812) (46,409,360) 7,006,451
Shares issued
for:
Convertible
debt 15,569,114 512 14,101 2,434,166 2,448,267
Interest 1,717 2 10,617 10,619
Conversion of
Series A
shares 4,700,796 (271) 4,701 (4,701) -
Accrued interest (17,991) (17,991)
Net loss (17,617,187) (17,617,187)
-------- -------- ---------- ------- ---------- ------------- ------------- ------------- ------------
Balance -
December 31,
1997 32,261,289 - 638 241 $30,794 $56,170,715 ($344,803) ($64,026,547) ($8,169,841)
========== ===== =========== ======= ======== ============= ============= ============= ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>28
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 December 31,
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 being that of mineral resource exploration,
development and production.
In early May the Company suspended mining operations at the San Juan
Mine 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.
At December 31, 1997 the Company reduced the carrying value of its San
Juan property from $2,200,000, its cost, to the estimated recoverable
value of $659,214. The basis of the estimated recoverable value is an
outside, independent appraisal.
Since the cessation of mining operations, the price of gold has declined
to the $290 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. A write down of the carrying value of the development
costs and mineral rights of $2,888,764 was made. In November the Company
entered into a contract with an equipment liquidation company who have
guaranteed to sell the mobile mining equipment for $1,027,200 and have
loaned the company $915,874 at 8.6% secured by the equipment and payable
from the proceeds from the sale of the equipment. 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 $850,106 at December 31, 1997. 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.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of consolidation - The consolidated financial statements include
the accounts of the Company and its 99% owned Mexican subsidiary
SISKOMEX, S.A. de C.V. All significant intercompany accounts and
transactions have been eliminated.
Use of estimates - The preparation of the financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amount of assets and liabilities and disclosure of contingent
liabilities at the date of the financial statements and the reported
amount of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Cash and cash equivalents - Cash and cash equivalents consist of cash.
Revenue recognition - Revenue from gold production is recognized when
the finished product is poured based upon estimated weights and assays
at current market prices.
Inventories - Inventories of materials and supplies are carried at the
lower of average costs or estimated net realizable value. Inventories of
gold dore bars are carried at net realizable value.
<PAGE>29
Property, plant and equipment - Plant and equipment are stated at cost.
Plant depreciation is computed using the units of production method
based on proven and probable reserves. Mining and other equipment
depreciation is computed on straight-line methods over the estimated
useful lives of the assets, principally 7 to 10 years.
Property acquisition costs are recorded at cost and are depleted on a
unit of production method based on proven and probable reserves.
Land is recorded at cost.
Development costs are capitalized and amortized on a unit of production
method based on proven and probable reserves.
Borrowing costs are capitalized on expenditures related to development
projects actively being prepared for their intended use. Capitalization
is discontinued when the asset is substantially complete and ready for
its intended use.
Asset carrying values: The recoverability of investments in operating
mines and non-operating properties is evaluated periodically. Estimated
future net cash flows from each mine and non-operating property are
calculated using estimates of proven and probable ore reserves for
operating properties and estimated contained mineralization expected to
be classified as proven and probable reserves based on geological
delineation to date for non-operating properties, estimated future sales
prices (considering historical and current prices, price trends and
related factors) and operating, capital and reclamation costs.
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable, and, if deemed
impaired, measurement and recording of an impairment loss are based on
the fair value of the asset which generally is computed using discounted
cash flows. See note 4 for the impairment losses recognized at December
31, 1997 and 1996.
Management's estimates of gold prices, recoverable proven and probable
reserves, operating, capital and reclamation costs are subject to
certain risks and uncertainties which may affect the recoverability of
the Company's investment in property, plant and equipment. Although
management has made its best estimate of these factors based on
current conditions, it is reasonably possible that changes could
occur in the near term which could adversely affect management's
estimate of the net cash flows expected to be generated from its
operating properties.
Exploration costs - Exploration costs are expensed as incurred.
Reclamation costs - Reclamation costs are estimated and accrued on an
undiscounted basis over the productive life of properties using the
units-of-production method, based on ounces recovered. Remediation
liabilities are expensed immediately when the liability is probable and
estimable. Based on current environmental regulations and known
reclamation requirements, management has included its best estimates of
these obligations in its reclamation accruals. However, it is reasonably
possible that the Company's estimates of its ultimate reclamation
liabilities could change as a result of changes in regulations or cost
estimates.
Deferred financing costs - Costs associated with issuing convertible
debt are deferred and amortized over the life of the debt. The discount
on the price of the stock underlying convertible debt is capitalized and
amortized over the period from the issuance of the debt until the first
date of conversion.
Income taxes - The Company accounts for income taxes using the liability
method which requires recognition of deferred tax liabilities and assets
for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Deferred tax assets
and liabilities are determined based on the difference between the
financial statements and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are
expected to reverse. Valuation allowances against deferred tax assets
are recorded to the extent management estimates that the benefit will
not be realized.
Stock based compensation - SFAS 123 "Accounting for Stock-Based
Compensation" encourages, but does not require, companies to record
compensation cost for stock-based employee compensation plans at fair
value. The Company has chosen to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. ("APB") 25, "Accounting for Stock
<PAGE>30
Issued to Employees," and related interpretations. Accordingly,
compensation cost for stock options is measured as the excess, if any,
of the quoted market price of the Company's common stock at the date of
grant over the amount an employee must pay to acquire the stock.
Loss per share - In February 1997, the Financial Accounting Standards
Board issued SFAS 128, "Earnings per Share," which is effective for
periods beginning after December 15, 1997. SFAS 128 has simplified the
existing computational guidelines as well as revised the existing
disclosure requirements. The Company will adopt the provisions of SFAS
128 in the 1997 year.
Loss per share is calculated based on the weighted average Class A
common shares outstanding during 1997. Common stock equivalents, mainly
series 2 Class B common stock and convertible debt and stock options and
warrants, are not included in the calculation of weighted average shares
outstanding as they are anti-dilutive.
3. PREPAID EXPENSES AND OTHER
Prepaid expenses and other at December 31 were as follows: 1997
Deferred financing costs $ 67,743
Discount on price of stock underlying convertible debt -
Property taxes, insurance and other 35,095
------------
$ 102,838
=============
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31 were as
follows: 1997
Property acquisition and development costs
San Juan $ 2,200,000
Big Horn 365,126
Gold Point 95,000
Mining equipment 3,816,564
Plant 1,303,386
Office equipment, furniture and vehicles 108,937
--------------
7,889,013
Less: accumulated depletion, depreciation and
amortization 3,521,114
mineral property impairment loss 2,398,452
--------------
$ 1,969,447
==============
In early May the Company suspended mining operations at the San Juan
Mine 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.
Since the cessation of mining operations, the price of gold has declined
to the $290 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. A write down of the carrying value of development
costs and mineral properties of $2,888,764 was made. In November 1997
the Company entered into a contract with an equipment liquidation
company who have guaranteed to sell the mobile mining equipment for
$1,027,200 and have loaned the company $907,000 at 8.6% secured by the
equipment and payable from the proceeds from the sale of the equipment.
Based on current estimates of the plant and equipment
<PAGE>31
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 $850,106 at December
31, 1997. In April 1998 proceeds from the sale of equipment were
$1,196,576.
In the fourth quarter of 1996, as a result of recent declines in the
gold price combined with higher than anticipated operating costs, the
Company determined that it may not recover its investment in the San
Juan mine over the life of the property and accordingly reduced the
carrying value of this property by $10,295,517 based on the Company's
estimate of its fair value. The fair value was determined based on the
estimated discounted future net cash flows expected to be generated over
the life of the San Juan mine.
At December 31, 1997 the carrying value of the San Juan property was
reduced from its cost, $2,200,000, to its estimated recoverable value of
$659,214, at a write down of $1,540,785. The estimated recoverable value
is based on an independent, outside appraisal.
In February 1997 the Company sold its interest in its oil and gas
properties for $17,500 cash and recognized a gain of $17,500. In
September 1997 the Company sold its interest in the Humbolt Starlight
property for $40,000 cash and its interest in the Aurora properties for
$100,000 cash. The Company recognized a gain of $140,000 on these
transactions. In August 1997 the Company sold equipment and supplies to
the President of the Company for $385,300. Cash payments of $157,300
were received and $228,000 in debt was assumed. In December 1997 the
company sold its interest in the Hilltop property for $10,000 cash and
recognized a gain of $10,000.
5. OTHER ASSETS
Other assets at December 31 were as follows: 1997
Reclamation Bonds $ 180,919
Deferred Financing costs -
--------------
$ 180,919
==============
6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at December 31 were as follows:
1997
Trade payables $ 114,756
Accrued wages 8,894
Accrued sales and property taxes and insurance 95,202
--------------
$ 218,852
==============
7. LONG-TERM DEBT
Long-term debt at December 31 was as follows: 1997
Land purchase notes $ 115,126
Equipment contract 935,228
Convertible notes payable to shareholders 9,141,927
Discount on the price of stock underlying convertible notes -
--------------
10,192,281
Less: current portion 10,177,992
--------------
$ 14,289
==============
<PAGE>32
Activity in the convertible notes payable to shareholders for the years
ended December 31 was as follows:
1997
Balance - beginning of year $ 9,772,640
Borrowings 450,000
Accrued interest 868,009
Conversion to common and preferred stock (1,948,722)
--------------
Balance - end of year $ 9,141,927
==============
Components of notes payable to shareholders for the years ended December
31 was as follows:
1997
Carl and Linda Seaman and family $ 5,909,675
Vengold Inc. 3,232,252
Cygni S.A. -
Income Partnership of America, Ltd. -
--------------
$ 9,141,927
==============
Maturities of long term debt at December 31, 1997 are as follows:
1998 $ 10,177,992
1999 5,695
2000 6,255
2001 2,339
Thereafter -
--------------
$ 10,192,281
==============
Payments on the land purchase notes were discontinued in July of 1997.
One note was cancelled and the property returned to the original owner,
the remaining notes are in default and the land will be returned to the
original owners.
The equipment contract is secured by the equipment with interest at 8.6
percent and was paid off from the proceeds from the sale of the
equipment in April 1998.
The convertible notes payable to Carl and Linda Seaman and family (the
"Seamans") are collateralized by the San Juan and Big Horn mines, mature
November 15, 1998 and bear interest at 10%. Interest accruing for the
first two years is payable in Class A common stock at $2.56 per share
and in cash thereafter. On May 17, 1996, the Company borrowed an
additional $500,000 from Carl Seaman under the same terms except that
principal and interest is convertible into Class A common stock at $1.75
per share. Additionally, Mr. Seaman was granted the right to convert
$500,000 of the Seamans' existing convertible debt into Class A common
stock at $1.75 per share as well. If a private placement is completed
prior to November 15, 1998 at a price below $1.75 per share, Mr. Seaman
would have the right to change the conversion price of his new note to
the same as that under the private placement. At December 31, 1997,
$1,000,000 of debt is convertible into 571,428 shares of Class A common
stock at $1.75 per share and $4,302,783 is convertible into 1,229,367
shares of Class A common stock at $3.50 per share. (See Note 11.)
The convertible note payable to Vengold Inc. is collateralized by the
San Juan and Big Horn mines, matures November 15, 1998, bears interest
at 10% and is convertible into 1,171,875 shares of Class A common stock
at $2.56 per share. Interest accruing for the first two years is payable
in Class A common stock at $2.56 per share and in cash thereafter. (See
Note 11.)
<PAGE>33
In October 1996 the company issued for $1,150,000 a convertible note
payable to Cygni S.A., bearing interest at 8% and maturing October 1,
1998. The note was convertible into shares of Class A common stock at a
conversion price equal to the lesser of (a) the market price of the
common stock on October 17, 1996, or (b) seventy five per cent of
the market price if the conversion is before January 25, 1997 or
seventy per cent of the market price if the conversion is after
January 24, 1997. 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. 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. During 1996, $200,000 of principal was converted
into 303,576 shares of Class A common stock. During 1997 the remaining
principal of $959,000 andaccrued interest was converted into 5,301,289
shares of Class A common stock.
In November 1996 the company issued for $500,000 a convertible note
payable to Income Partnership of America, Ltd, bearing interest at 8%
and maturing January 1, 2000. The note is convertible into shares of
Series A convertible preferred stock at a conversion price of $1,000 per
share. The number of shares of Class A common stock issuable upon the
conversion of the preferred stock is determined by dividing the number
1,000 by seventy five percent of the average bid price of the Class A
common stock over a ten trading day period immediately preceding the
conversion date. The debenture may be prepaid, without penalty, anytime
after one hundred eighty days from the date of issue. Likewise, the
preferred stock may be redeemed by the Company at its liquidation value
of $1,000 per share, plus accrued dividends. Dividends on the preferred
stock accrue at eight percent per annum and are cumulative. Any
debenture or shares of preferred stock outstanding on January 1, 2000,
automatically convert to shares of Class A Common Stock at the
conversion price set forth above. So long as any debenture or share of
preferred stock remain outstanding, the holder may not, directly or
indirectly, initiate or maintain any short position in the securities of
the Company. The Company issued the 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.
On March 7, 1997 all of the debentures and accrued interest amounting to
$511,111 were converted to 512 shares of Series A convertible preferred
stock and during 1997 241 shares of the preferred stock thus issued were
converted into 4,700,796 shares of Class A common stock.
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 principal 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 1997 the notes in
the amount of $450,000 and accrued interest were converted into
10,267,786 shares of Class A Common Stock.
Total interest costs during 1997 and 1996 were $1,332,240 and $1,457,746
respectively, of which $352,171 in 1996 was capitalized to development
costs. Included in interest expense in 1997 and 1996 is $282,923 and
$490,647, respectively, relating to the amortization of the discount in
the price of the stock underlying the convertible debt. The offset to
the discount in the price of the stock underlying the convertible debt
is included in long term debt and credited to paid in capital as the
debt is converted.
8. INCOME TAXES
The components of the deferred tax assets (liabilities) as of December
31 were as follows:
1997
Benefit from NOL's $ 12,597,000
Exploration and development costs (3,691,000)
Basis in mineral rights (1,935,000)
Property, plant & equipment (926,000)
Other (57,000)
--------------
5,988,000
Less: valuation allowance (5,988,000)
--------------
<PAGE>34
Net deferred tax assets $ 0
==============
Due to the uncertainty of realization, a valuation allowance has been
provided on all net deferred tax assets at both December 31, 1997.
At December 31, 1997, the Company has net operating loss carryforwards
(NOL's) of approximately $37,048,000 for Federal income tax purposes and
$10,115,000 for state income tax purposes. $17,071,000 of the NOL's
arose from predecessor companies that had changes of ownership as
defined by Federal income tax laws. Such laws limit the annual
utilization of NOL's in subsequent years. At December 31, 1997 NOL's
available for current utilization are estimated to be $25,649,000. The
Company's NOL's expire at various dates through 2011.
9. CAPITAL STOCK
Authorized Capital
In August 1997 the shareholders approved an increase in the authorized
common shares to 300,000,000 from 50,000,000 shares of common stock with
a $.001 par value, of which 299,500,000 shares are designated as "Class
A" common stock and 500,000 shares are designated as "Series 1 Class B"
and "Series 2 Class B" common stock. The Board of Directors is
authorized to provide for the issuance of Class B common stock and to
determine the rights and privileges of the Class B common stock,
including the conversion rights and voting rights of any such issuance
without any further vote or action by shareholders. Class A common
shareholders are entitled to one vote for each share on each matter
submitted to a vote of shareholders.
The Company is authorized to issue up to 10,000,000 shares of preferred
stock with a $.001 par value. The Board of Directors is authorized to
provide for the issuance of preferred stock in series and to determine
the rights, preferences and privileges of the preferred stock, including
the dividend rights, dividend rate, conversion rights, voting rights,
rights and terms of redemption, liquidation preferences and sinking fund
terms of any future series of preferred stock, the number of shares
constituting any such series and the designation thereof, without any
further vote or action by common shareholders. Shares of preferred stock
may be issued by the Board of Directors with voting, conversion or other
rights that could have the effect of delaying, deferring or preventing a
change in control of the Company, or that could adversely affect the
voting power of Class A common shareholders. On November 18, 1996 the
Company authorized the issuance of 2,400 shares of Series A Convertible
Preferred Stock in connection with the issuance of convertible debt of
which 512 shares were issued in 1997 and 241 shares converted.
Series 1 Class B Common Stock
At December 31, 1996, 638 shares of Series 1 Class B common stock were
owned by a former Director. Each share of Series 1 Class B common stock
may be converted into 100 shares of Class A common stock for every
$25,000 increment of equity, debt, or project financing raised by the
Company through the Director's efforts. The Company has the right to
repurchase the Series 1 Class B shares for cash, before the shares are
converted, or upon certain events.
Class A Common Stock
The Company has reserved approximately 19,500,000 shares of Class A
common stock for future issuance in connection with convertible notes
(see Note 9) and 315,000 shares of Class A common stock for future
issuance in connection with the exercise of options and warrants.
Issuance of Class A Common Stock to Directors and Officers
The Company has a Directors Stock Compensation plan adopted on October
14, 1991 of which 81,740 shares of Class A common stock were available
for issuance at December 31, 1997. The plan provides for the initial
grant of $10,000 of shares of Class A common stock to each director upon
the initial election or appointment as director and the annual grant of
$10,000 of Class A shares to each director who has been elected or
appointed to the board on or after June 18, 1993. The number of Class A
shares granted are derived by dividing the average bid price for the
Class A shares for the preceding year or quarter, whichever is lower
into $10,000. No shares were issued in 1997 and during 1996, 18,850
shares of Class A common stock were granted under this plan.
In February 1993, the Company issued 150,000 shares of Class A common
stock to its Chief Executive Officer at a price of $2.00 per share in
exchange for $150 in cash and a five year non-recourse promissory note
in the amount of $299,850 reported as a reduction of shareholders'
equity. The note is secured by the common stock. The note bears interest
at 6% per annum with all principal and interest due at maturity.
<PAGE>35
On May 12, 1998 the note became due and was in default. The shares were
returned to the company.
Private Placements
On November 15, 1995 the Company completed a private placement with
Vengold Inc. and restructured its convertible debt with the Seamans. The
Company received $5,000,000 from the private placement which comprised
$2,000,000 for 39,062.5 shares of the Company's Series 2 Class B common
stock, $3,000,000 principal convertible debt, warrants to purchase
2,000,000 shares of Class A common stock at $3.50 per share expiring on
December 31, 1996 and warrants to purchase an additional 2,000,000
shares of Class A common stock at $4.00 per share expiring November 15,
1997. The Series 2 Class B shares convert at the rate of 20 shares of
Class A common stock for each share of Series 2 Class B common stock.
The $2,000,000 Series 2 Class B shares equates to $2.56 per share of
Class A common stock. The Series 2 Class B shares have the same rights
as the Class A shares except that the Series 2 Class B shareholders have
the right to elect two directors to the Board of Directors. A project
committee of the Board was formed to approve project budgets for the
expenditure of the $5,000,000 and proceeds from future warrant
exercises. The Committee was comprised of three directors, two of which
could be appointed by the Series 2 Class B shareholders. In May 1996,
the Board of Directors determined that the proceeds received in the
private placement had been fully expended and as a result, the two
directors appointed by Vengold Inc. resigned and the Board dissolved the
Budget Committee. On August 15, 1996 Vengold Inc. converted the 39,062.5
shares of Class B Series 2 common stock into 781,250 shares of Class A
common stock.
10. STOCK OPTIONS
Stock option transactions for the year ended December 31, 1997 were as
follows:
<TABLE>
<S> <C> <C> <C>
Number of Exercise Exercisable
Class A Shares Price Per Share Options
Outstanding at December 31, 1996 723,500 1.75 - 4.94 501,000
Granted 3,000 .78 3,000
Cancelled (572,000) .78 - 4.94 (434,500)
Vested - 2.06 - 3.05 55,000
-------------- ---------
Outstanding at December 31, 1997 154,500 $ .78-4.00 124,500
=========== ==========
</TABLE>
In accordance with the pro forma disclosure requirements of SFAS 123,
the Company's net loss and loss per share for the year ended December
31, 1996 would have been increased to the pro forma amounts indicated
below:
1996
Net loss As reported $ (14,394,185)
Pro forma $ (14,478,303)
Net loss per share As reported $ (1.31)
Pro forma $ (1.32)
The weighted average fair value of the options granted during 1996 was
$0.75. The fair value of each stock option is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted average assumptions: risk-free rate of 6.5%, expected life of
4.8 years, expected volatility of 70% and no dividend yield.
The Company grants incentive stock options to directors, officers and
employees pursuant to the Siskon Stock Option Plan (the "Plan"), as
amended, under which options are granted to eligible employees at the
discretion of the Stock Option and Compensation Committee (the
"Committee"). Options have a term of up to ten years, and become
exercisable as determined by the Committee. The exercise price of the
options granted is not less than the fair market value of the shares at
the date of grant. Generally, stock options when granted are exercisable
all or in part at the discretion of the option holder and are
non-transferable. In addition, optionees must continue to hold a
position with the Company for three months beyond the date of grant of
the option for it to become effective, subject to waiver in certain
circumstances. The exercise price of an option is payable at the time of
<PAGE>36
exercise. At December 31, 1997 and 1996 there were 572,000 and 53,000
shares respectively, of Class A common stock available to grant.
11. WARRANTS
Warrant transactions for the two years ended December 31, 1996 were as
follows:
<TABLE>
<S> <C> <C> <C>
Number of Class Exercise Exercisable
A Shares Price Per Share Warrants
Outstanding at December 31, 1995 4,719,083 $2.82 - $7.50 4,719,083
Granted 100,000 2.00 100,000
Cancelled (2,000,000) 3.50 (2,000,000)
----------- -----------
Outstanding at December 31, 1996 2,819,083 2.00 - 7.50 2,819,083
Cancelled (2,659,083) 2.82 7.50 (2,659,083)
----------- -----------
Outstanding at December 31, 1997 160,000 $2.00 - $4.00 160,000
=========== ===========
</TABLE>
In October 1996, the Company issued underwriter warrants to purchase
100,000 shares of Class A common stock at a price of $2.00 which expire
in 1998.
12. SUPPLEMENTAL CASH FLOW INFORMATION
Noncash investing and financing activities for the years ended December
31 were as follows:
1997 1996
Common stock issued for services $ - $ 50,000
Common Stock issued for interest 73,973 809,307
Accrued interest on convertible debt 165,774 10,983
Capitalized interest - 352,171
Capitalized depreciation - 291,192
Conversion of convertible debt 2,646,961 247,695
Conversion of preferred stock 3,532 -
Discount on price of stock underlying
convertible debt 282,923 548,289
Borrowings of equipment debt 46,682 306,541
Cash paid for interest during 1997 and 1996 totalled $166,232 and
$60,064 respectively.
13. RELATED PARTY TRANSACTIONS
During 1997 and 1996, the Company incurred expenses of $108,995 and
$239,850 respectively, to directors, former directors, officers, and
shareholders for legal, geological and other consulting services. See
also Note 9 related to convertible notes payable issued to shareholders.
14. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leased office space under a noncancellable operating lease.
Rent expense for 1997 and 1996 totalled $33,941 and $36,785
respectively. Subsequent to year end the company relocated it corporate
office.
<PAGE>37
Reclamation
Costs accrued for the San Juan Mine amounted to $140,369 in 1997.
Reclamation costs incurred in 1997 amounted to $74,608.
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. On September 23, 1997 the CAL
RWQCB issued a tentative cleanup and abatement order 97-116 for the Old
Grey Eagle tailings disposal site naming the companies whoever operated
the Grey Eagle Mine and disposed the mine tailings at the site and
subsequent mine owners of the property including the Company. Comments
are due by October 15, 1997. The Company intends to seek indemnification
from the prior owners and operators of the property.
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.
In April 1997 the Company notified Noranda Grey Eagle Mines, Inc.
("Noranda") of Noranda's obligations to defend Siskon pursuant to the
indemnity agreement between the parties. On August 11, 1997 Noranda
brought an action in US District court for the Eastern District of
California, Case number CIV-S 97-1486 WBS 166H, Seeking declaratory
relief from such indemnity and granted an extension until November 15,
1997 for Siskon to file its response. On October 22, 1997 CALSPA
dismissed without prejudice its action against the Company.
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. 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. 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.
In March of 1998 attorneys representing a homeowner filed a lawsuit in
Nevada County Superior court, against Siskon alleging the water quality
of their well was affected by Siskon's operations. The plaintiff has
asserted that on or about September 1, 1995 the properties domestic
water wells were depleted of water, causing deterioration of the
quantity and quality of water available. The plaintiff further asserts
that as a result of the impacted well there have been losses due to
damage of personal property and general damages. The plaintiff is suing
for general and other damages.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of the Company's cash and cash equivalents, notes
receivable and long term debt approximate their estimated fair values.
<PAGE>38
16. GOING CONCERN
As discussed in Note 1, during 1997 the Company suspended all mining
operations, wrote down $5,575,190 of development costs and mineral
rights, wrote down its plant and equipment to net realizable value and
wrote down its San Juan property from its cost of $2.2 million to an
estimated realizable value of $659,214. Subsequent to December 31, 1997,
the Company liquidated all operating plant an equipment. Currently all
properties are in a care and maintenance mode.
The Seaman and Vengold notes payable, see note 7, are both
collateralized by the San Juan and Big Horn properties; both notes
mature November 15, 1998. The Company is in default on both notes due to
its failure to keep property taxes paid current on these properties.
Subsequent to year end the Company relocated its administrative office
and reduced it staff to two full time employees.
Because of the uncertainty of the Company to continue its operations and
to satisfy it creditors on a timely basis, there is substantial doubt
about the company's ability to continue as a going concern. The
financial statements do not include any adjustments that might be
necessary should the company be unable to continue as a going concern.
<PAGE>39
EXHIBITS
<PAGE>40
FORM 10-KSB - ITEM 13
SISKON GOLD CORPORATION
LIST OF EXHIBITS
The following Exhibits of the Company are included in response to Item 13.
21.1 List of Subsidiaries
23.1 Consent of Lund & McSweeney, Certified Public Accountants
<PAGE>41
EXHIBIT
21.1
SISKON GOLD CORPORATION
LIST OF SUBSIDIARIES
SUBSIDIARY PLACE OF INCORPORATION PERCENT OWNED
Siskomex, S.A. de C.V. Mexico 99%
<PAGE>42
EXHIBIT
23.1
CONSENT OF LUND & McSWEENEY
<PAGE>43
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Siskon Gold Corporation on Form S-3 (Registration No. 33-73066, 33-63596,
33-65874, 33-95876 and 333-07833) and on Form S-8 (Registration No. 33-95770) of
our report dated March 12, 1997, on our audits of the consolidated financial
statements of Siskon Gold Corporation as of December 31, 1996 and 1995, and for
the years then ended, which report is included in this annual report on Form
10-KSB.
Lund & McSweeney, Certified Public Accountants
Grass Valley, California
September , 1998
