-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GC1juxHV0tOxeW5h4nLlUVwZB2dKjk8Ejrm19IgxFonXTK+Qn3OBO6z+5n2rH4wG AQtqkrevYR4iZudy73Vwhw== 0000950144-96-005483.txt : 19960816 0000950144-96-005483.hdr.sgml : 19960816 ACCESSION NUMBER: 0000950144-96-005483 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PIEDMONT MINING CO INC CENTRAL INDEX KEY: 0000819517 STANDARD INDUSTRIAL CLASSIFICATION: GOLD & SILVER ORES [1040] IRS NUMBER: 561378516 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-16436 FILM NUMBER: 96612360 BUSINESS ADDRESS: STREET 1: 4215 STUART ANDREW BLVD CITY: CHARLOTTE STATE: NC ZIP: 28217 BUSINESS PHONE: 7045236866 MAIL ADDRESS: STREET 1: 4215 STUART ANDREW BLVD CITY: CHARLOTTE STATE: NC ZIP: 28217 10QSB 1 PIEDMONT MINING COMPANY FORM 10-QSB 1 FORM 10-QSB U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------------- -------------- COMMISSION FILE NUMBER 0-16436 ------- PIEDMONT MINING COMPANY, INC. (Exact name of small business issuer as specified in its charter) NORTH CAROLINA 56-1378516 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 4215 STUART ANDREW BOULEVARD CHARLOTTE, NORTH CAROLINA 28217 (Address of principal executive offices) (704) 523-6866 (Issuer's telephone number) NOT APPLICABLE (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ------- ------- APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: COMMON STOCK, NO PAR VALUE--15,043,869 SHARES OUTSTANDING AS OF AUGUST 1, 1996 -1- 2 INDEX PIEDMONT MINING COMPANY, INC. PART I. FINANCIAL INFORMATION
Page Item 1. Financial Statements. Consolidated Condensed Balance Sheets--June 30, 1996 3 (unaudited) and December 31, 1995 Consolidated Condensed Statements of Operations (unaudited)-- 4 Three months ended June 30, 1996 and June 30, 1995--- Six months ended June 30, 1996 and June 30, 1995 Consolidated Condensed Statements of Cash Flows 5 (unaudited)--Six months ended June 30, 1996 and June 30, 1995 Notes to Consolidated Condensed Financial Statements 6 (unaudited)--June 30, 1996 Item 2. Management's Discussion and Analysis of 10 Financial Condition and Results of Operations. PART II. OTHER INFORMATION Item 1. Legal Proceedings 14 Item 4. Submission of Matters to A Vote of Security Holders 15 Item 6. Exhibits and Reports on Form 8-K. 15 SIGNATURES 16
- 2 - 3 PIEDMONT MINING COMPANY, INC PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED CONDENSED BALANCE SHEETS
At At June 30 December 31 1996 1995 ----------- ------------ (unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents (including $0 and $0 relating to the Haile Mining Venture) $ 536,000 $ 782,000 Investment in Amax Gold common stock (Note B) 1,058,000 1,830,000 Accounts receivable 28,000 28,000 Other 4,000 -0- ------------ ----------- TOTAL CURRENT ASSETS 1,626,000 2,640,000 PROPERTY AND EQUIPMENT (including $230,000 and $245,000 relating to the Haile Mining Venture) 269,000 286,000 OTHER ASSETS Deferred costs, net of accumulated amortization of $3,377,000 (including $1,536,000 relating to the Haile Mining Venture) 1,754,000 1,754,000 Other 4,000 4,000 ------------ ----------- TOTAL OTHER ASSETS 1,758,000 1,758,000 ------------ ----------- TOTAL ASSETS $ 3,653,000 $ 4,684,000 ============ =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable (including $369,000 and $234,000 relating to Haile Mining Venture) $ 383,000 $ 288,000 Accrued venture costs (Note C) 498,000 315,000 Accrued salaries and wages 13,000 9,000 Accrued arbitration award (Note E) 1,370,000 1,370,000 ------------ ----------- TOTAL CURRENT LIABILITIES 2,264,000 1,982,000 ------------ ----------- ACCRUED RECLAMATION COSTS 125,000 125,000 ------------ ----------- DEFERRED GAIN 7,019,000 7,019,000 Less accumulated amortization 6,674,000 6,341,000 ------------ ----------- 345,000 678,000 SHAREHOLDERS' EQUITY Common Stock 11,157,000 11,157,000 Contributed capital 317,000 317,000 Accumulated deficit (10,584,000) (9,882,000) Unrealized gain on available-for-sale securities (Note C) 29,000 307,000 ------------ ----------- TOTAL SHAREHOLDERS' EQUITY 919,000 1,899,000 ------------ ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,653,000 $ 4,684,000 ============ ===========
See notes to consolidated condensed financial statements. - 3 - 4 PIEDMONT MINING COMPANY, INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended Six Months Ended June 30 June 30 ---------------------- ------------------------ 1996 1995 1996 1995 ---------- ---------- ---------- ---------- NET SALES $ -0- $ -0- $ -0- $ -0- COST OF SALES: Depreciation expense 3,000 3,000 5,000 5,000 Haile Mining Venture expenses (Notes B,C) 202,000 193,000 333,000 334,000 Amortization-deferred gain (Notes B,C) (202,000) (193,000) (333,000) (334,000) ---------- ---------- ---------- ---------- 3,000 3,000 5,000 5,000 ---------- ---------- ---------- ---------- GROSS LOSS FROM OPERATIONS 3,000 3,000 5,000 5,000 OTHER (INCOME) EXPENSES: General and administrative 142,000 170,000 310,000 326,000 Stock appreciation rights and awards -0- -0- -0- -0- Exploration 2,000 -0- 4,000 5,000 Professional fees 185,000 53,000 317,000 108,000 Interest and other, net (6,000) (1,000) (13,000) 22,000 Gain on sale of stock (68,000) 19,000 (104,000) 113,000 Brokers fees and commissions 3,000 10,000 4,000 41,000 ---------- ---------- ---------- ---------- 258,000 251,000 518,000 615,000 ---------- ---------- ---------- ---------- LOSS BEFORE INCOME TAXES 261,000 254,000 523,000 620,000 Income tax benefit (provision) (134,000) (48,000) (178,000) 72,000 ---------- ---------- ---------- ---------- NET LOSS $ 395,000 $ 302,000 $ 701,000 $ 548,000 ---------- ---------- ---------- ---------- NET LOSS PER COMMON SHARE $ .03 $ .02 $ .05 $ .04 ========== ========== ========== ========== CASH DIVIDENDS PER SHARE None None None None WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 15,043,869 15,043,869 15,043,869 15,043,869 ========== ========== ========== ==========
See notes to consolidated condensed financial statements. - 4 - 5 PIEDMONT MINING COMPANY, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended June 30, ---------------------- 1996 1995 ---------- ----------- OPERATING ACTIVITIES Net loss $(701,000) $ (548,000) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 20,000 18,000 Amortization of deferred gain (333,000) (334,000) Deferred income tax (benefit) expense 178,000 (72,000) Compensation recorded with respect to stock appreciation rights and stock awards -0- -0- (Gain) Loss on sale of assets (104,000) 110,000 Changes in operating assets and liabilities: Decrease in income taxes receivable -0- -0- Increase (decrease) in accounts payable and accrued expenses 282,000 158,000 Other (4,000) (3,000) --------- ----------- NET CASH USED IN OPERATING ACTIVITIES (662,000) (671,000) --------- ----------- INVESTING ACTIVITIES Purchase of property and equipment -0- -0- Proceeds from sales of land, property and equipment -0- 3,000 Proceeds from sales of Amax Gold Inc. stock 416,000 3,548,000 --------- ----------- NET CASH PROVIDED BY INVESTING ACTIVITIES 416,000 3,551,000 --------- ----------- FINANCING ACTIVITIES Proceeds from note payable to Amax Gold Inc. -0- -0- Proceeds from broker margin loan -0- -0- Payments on short-term debt -0- (2,197,000) --------- ----------- NET CASH USED IN FINANCING ACTIVITIES -0- (2,197,000) --------- ----------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (246,000) 683,000 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 782,000 91,000 --------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 536,000 $ 774,000 ========= ===========
See notes to consolidated condensed financial statements. - 5 - 6 PIEDMONT MINING COMPANY, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) June 30, 1996 NOTE A - BASIS OF PRESENTATION The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The consolidated condensed financial statements include the accounts of the Registrant and its wholly-owned subsidiaries, Kershaw Gold Company, Inc. (formerly Mineral Mining Company, Inc.) and Piedmont Gold Company, Inc. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Certain reclassifications of prior year amounts have been made to conform to current year presentation. Operating results for the six month period ended June 30, 1996 are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. For further information, refer to the financial statements and footnotes thereto included in the Registrant's audited consolidated financial statements on Form 10-KSB for the year ended December 31, 1995. NOTE B - HAILE MINING VENTURE On March 15, 1991, the Registrant entered into an option and earn-in agreement with Amax Gold Exploration, Inc. (AGEI), a wholly-owned subsidiary of Amax Gold Inc. (AGI), pursuant to which AGI acquired an option to purchase a 62.5% interest in the Registrant's Haile Property located in South Carolina. Pursuant to this agreement and as part of the earn-in conditions, AGEI paid the Registrant $1,000,000 in cash; assumed the Registrant's obligations to make payments on its notes to MMC Holding, Inc. and its sole shareholder through May 1, 1992 (a total of $1,072,000); provided financial support for a $750,000 reclamation bond increase; agreed to fund all exploration costs during the option period and prepared at its sole cost a preliminary feasibility study for the Haile Property which was delivered to the Registrant in December, 1991. On May 1, 1992, AGI through its wholly-owned subsidiary, Lancaster Mining Company, Inc., exercised its option and acquired a 62.5% undivided interest in the Registrant's Haile Property. Upon the exercise of the option, the Registrant received $1,750,000 in cash and 1,000,000 unregistered shares of AGI's common stock (AGI Common Stock), of which the Registrant has 192,300 shares remaining at June 30, 1996. The closing price of AGI Common Stock on the New York Stock Exchange was $5.50 on June 30, 1996. Pursuant to the terms of the option and earn-in agreement, Kershaw Gold Company, Inc. and Lancaster Mining Company, Inc. formed the Haile Mining Venture (the Venture) to further explore, evaluate and, if warranted, develop and operate a gold mine at the Haile Property. Lancaster Mining Company, Inc. owns a 62.5% undivided interest and Kershaw Gold Company, Inc. owns a 37.5% undivided interest in the Venture's assets and liabilities. Costs of the Venture have been borne by each party based on their respective interests, and the ultimate gold production by the Venture, if any, will be taken by the parties in kind. -6- 7 In contemplation of the formation of the Venture described above, the Registrant suspended its mining and hauling operations in August 1991. On June 30, 1992, leaching and recovery of gold ceased for the Registrant's account and commenced for the account of the Venture. The excess of the consideration received by the Registrant from AGI over the carrying value of the Haile assets sold and liabilities assumed has been recorded as a deferred gain in the accompanying consolidated balance sheet because the Registrant had intended to fund its share of the costs of the Venture at the Haile Property. The Venture agreement between Kershaw Gold Company, Inc. and Lancaster Mining Company, Inc. provided that the Venture participants jointly decide whether to commence production at the Haile Property. Until a production decision is made, the Registrant is charging to expense all of its share of the Venture's costs and expenses. The 1994 program and budget called for total Venture expenditures of approximately $6,300,000, including $1,900,000 for additional drilling and $150,000 for completion of a bankable feasibility study. However, no further drilling was conducted in 1994, the bankable feasibility study has not yet been produced, and actual Venture expenditures for 1994 were approximately $2,415,000. In September 1994, the Registrant was advised by AGI that AGI had decided to pursue the sale of its interest in the Venture. The 1995 program and budget included total Venture expenditures of approximately $1,010,000, of which the Registrant's 37.5% share was approximately $378,750. The 1996 program and budget calls for total Venture expenditures of approximately $1,080,000, of which the Registrant's 37.5% share is approximately $405,000. The Registrant is amortizing the deferred gain to income in amounts equal to the sum of the Registrant's share of the Venture's costs and expenses and the Registrant's other direct costs of participation in the Venture. The amortization recorded was approximately $333,000 relating to costs incurred during the six month period ended June 30, 1996. However, as discussed in Note C, no cash calls have been paid by the Registrant since February 1995. On March 29, 1995, the Registrant filed a lawsuit in South Carolina against AGI and certain of its affiliates, claiming, among other things, that AGI's failure to implement the 1994 program and budget was in breach of its obligations under the Venture Agreement and Management Agreement for the Venture, and seeking damages. The Registrant intends to vigorously pursue its claims. (See Part II, Item 1 Legal Proceedings) The failure of AGI to implement the 1994 work plan and budget, the decision by AGI to pursue the sale of its interest in the Venture, and the pending litigation between the Registrant and AGI are expected to further delay a decision whether to commence production at the Haile property. Preliminary estimates of the total costs of developing and commencing operations, based upon the Preliminary Feasibility Study prepared by AGI in December 1991 pursuant to the Option and Earn-In Agreement, ranged up to approximately $80,000,000, of which the Registrant's 37.5% share could range up to approximately $30,000,000. NOTE C - ACCRUED VENTURE COSTS In February 1995, the Registrant advised AGI of its position that AGI was in breach of the Haile Mining Venture Agreement and Management Agreement. In March 1995, the Registrant further advised AGI of its position that it was not obligated to continue to -7- 8 pay the monthly cash calls for the Venture. Subsequent to the filing of the lawsuit against AGI described in Note B, the Registrant, through its counsel, again advised AGI of its position that it is not required to and does not intend to pay any further cash calls until the litigation is resolved. The cash calls for March 1995 through June 1996 are reflected as accrued venture costs on the Registrant's balance sheet at June 30, 1996 and are included in the Haile Mining Venture expenses and offset by the corresponding amortization of deferred gain in the Registrant's statement of operations for the six months ended June 30, 1996. However, the Registrant has not paid such cash calls and maintains its position that it is not obligated to make such payments. NOTE D - INVESTMENT IN AMAX GOLD COMMON STOCK Under Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities, ("FAS 115"), the Registrant records its investment in AGI common shares at fair value, with unrealized gains and losses reported in a separate component of shareholders' equity. In January 1995, the Registrant began selling shares of the AGI Common Stock on the open market. On February 27, 1995 the Registrant paid AGI $1,248,000, representing the entire loan balance plus accrued interest, from the proceeds of the sale of a portion of the shares of AGI Common Stock held by the Registrant. In addition, the Registrant repaid a brokers' loan in the first quarter of 1995 with $949,000 of such proceeds. During the first six month period of 1996 the Registrant sold 60,100 shares of the AGI Common Stock resulting in a gain of $104,000. At June 30, 1996, the Registrant held 192,300 shares of the AGI Common Stock. The closing price of AGI's Common Stock on the New York Stock Exchange on June 30, 1996 was $5.50 per share. The Registrant has substantial deferred tax assets relating principally to net operating loss carryforwards which are available to offset taxable income generated upon the future disposition of the AGI shares. Based on the Registrant's evaluation of the realizability of its deferred tax assets, the Registrant has recorded a valuation allowance to reduce deferred tax assets to an amount equal to its deferred tax liability. As of June 30, 1996, a deferred income tax liability relating to the unrealized gain on securities available-for-sale, in the amount of approximately $19,000, has been recorded as a reduction in the unrealized gain. This deferred tax liability decreased by $178,000 during the six month period ending June 30, 1996. Under Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes ("FAS 109"), the decrease in this deferred income tax liability resulted in a corresponding $178,000 increase in the Registrant's valuation allowance against deferred tax assets. In accordance with FAS 109, the tax expense relating to the increase of the valuation allowance has been recorded in the statement of operations. In the event that the unrealized gain on investment securities decreases in the future, the Registrant may be required to increase the valuation allowance through a provision for income taxes. NOTE E - CONTINGENCIES Pursuant to the Option and Earn-In Agreement, the Venture Agreement between the subsidiaries of the Registrant and AGI that are the Venture participants, and certain related agreements, the Registrant and its subsidiary have agreed to indemnify AGI and its affiliates from all environmental and other liabilities arising from matters occurring or existing at the Haile Property prior to March 15, 1991, or arising from acts, omissions and operations of the Registrant and its subsidiary from March 15, 1991 to July 1, 1992 (the date of formation of the Venture). -8- 9 Venture expenditures incurred form its formation through December 31, 1995 total approximately $11,505,000 of which the Registrant has paid its 37.5% share through February 1995. AGI has identified approximately $2,288,000 of these Venture expenditures through June 30, 1996 ($290,000 for the second half of 1992, $681,000 for 1993, $674,000 in 1994, $488,000 for 1995 and $155,000 for the first six months of 1996) that it now claims are subject to such indemnification provisions and should be reallocated 100% to the Registrant. The Registrant has paid its 37.5% share of such costs through December 31, 1994 (which total approximately $617,000), but has not paid the remaining 62.5% of such costs through December 31, 1994. Furthermore, the Registrant has not paid any of these costs since January 1995 due to the pending litigation. The Registrant has disputed such cost reallocation, and the total amount claimed by AGI through June 30, 1996 is approximately $1,671,000 and is increasing every month. A substantial part of such costs relate to ongoing water treatment and property maintenance at the Haile Mine property, as well as certain reclamation costs. AGI has also taken the position that the Registrant will be responsible for 100% of similar ongoing expenses in the future. The Venture's financial statements do not reflect the amount of such costs as Venture expenditures. The Registrant has disputed the cost reallocation asserted by AGI and arbitration proceedings were commenced by AGI in May 1995. On March 5, 1996 an arbitration panel of the American Arbitration Association rendered an award in connection with the Registrant's dispute with AGI over such cost reallocation. The award calls for the Registrant to pay approximately $1,370,000 of the disputed expenses to a subsidiary of AGI. In addition, approximately $33,000 in administrative expenses are to be borne by the Registrant. The Registrant has filed a motion to stay the confirmation proceeding and has also filed a cross motion to vacate the arbitration award. Oral argument before the Court was held on June 14, 1996 and a decision could be imminent. The award has been accrued as of December 31, 1995 and has been fully offset by amortization of the deferred gain in the statement of operations for the year ended December 31, 1995. The Registrant has not funded its share of the Venture's expenditures since February 1995 as a result of litigation commenced against AGI in March 1995, but such costs have been accrued. AGI has indicated that it intends to activate the dilution of interest provisions of the Venture Agreement as a result of the Registrant's failure to pay its share of Venture expenditures since March 1995. Dilution of the Registrant's interest in the Venture, if any, would result in a proportionate adjustment to the accounts in the Registrant's balance sheet relating to the Venture. On March 29, 1995, the Registrant filed a lawsuit in South Carolina against AGI claiming, among other things, that AGI's failure to implement the approved 1994 Program and Budget for the Venture was in breach of its obligations under the Venture Agreement and Management Agreement for the Venture, and seeking actual and punitive damages. Discovery was completed on August 1, 1996, with a trial date anticipated prior to year end. See Part II, Item 1 -- Legal Proceedings. No amounts have been recorded in the accompanying financial statements relating to this gain contingency. -9- 10 PIEDMONT MINING COMPANY, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations General The Registrant's principal operations prior to mid-1992, other than its exploration activities, were mining and production of gold at the Haile Property, which accounted for most of the Registrant's revenues to date. On March 15, 1991, the Registrant entered into an Option and Earn-In Agreement with Amax Gold Inc. (AGI) pursuant to which AGI was granted an option to acquire a 62.5% undivided interest in the Haile Property. In connection with its entering into the Option and Earn-In Agreement and AGI's exploration activities at the Haile Property during the option period thereunder, the Registrant began to phase out its shallow, open-pit mining operations at the Haile Property in March 1991 and suspended mining and hauling in August 1991. AGI exercised its option on May 1, 1992, and the Registrant and AGI formed the Venture on July 1, 1992 to further explore, evaluate, and, if warranted, develop and operate a large-scale mining operation at the Haile Property. The Registrant has an undivided 37.5% interest in the Venture's assets, liabilities, costs and revenues. Recovery and production of gold from the leaching of ore previously mined continued until July 1, 1992 for the account of the Registrant until the formation of the Venture on July 1, 1992, after which AGI commenced taking its 62.5% of the gold production. THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 1995. There were no sales or mine operating expenses for the three month period ended June 30, 1996 and 1995 due to the suspension of mining in 1991 and the completion in 1992 of recoveries of gold from leaching of ore previously mined. Depreciation expense remained unchanged at $3,000 because machinery and equipment purchases were offset by fixed assets being fully depreciated. General and administrative expenses decreased by 16.4% for the three month period ended June 30, 1996 due to reduced office expenses. Professional fees increased 259% principally due to the increase in required legal and consulting services as related to the pending litigation against Amax. Exploration expenses increased by $2,000 due to a timing difference in payment of lease expense for the Registrant's North Carolina properties. Interest and other, net was $6,000 of interest income for the three month period ending June 30,1996 compared to $1,000 of interest income for the three month period of 1995. This was a result of an increase in invested cash. The Registrant recorded a gain of approximately $68,000 on AGI stock sold during the three month period ending June 30, 1996, compared to a loss of $19,000 in the prior year quarter. As a result of the Registrant's reduced AGI stock sales for the three months ending June 30, 1996, brokers fees and commissions were $3,000 compared to $10,000 in 1995. -10- 11 PIEDMONT MINING COMPANY, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS (CONT.) The Registrant has been amortizing the deferred gain, recorded as a result of the AGI option exercise, to income in amounts equal to the sum of the Registrant's share of the Venture's costs and expenses and the Registrant's other direct costs of participation in the Venture. Such costs and related amortization amounted to $209,000 for the three months ended June 30, 1996. This amount is 8.3% lower than in the three months ended June 30, 1995. The Registrant recorded a deferred income tax provision of $134,000 for the three months ended June 30, 1996 relating principally to an increase in the valuation allowance against deferred income tax assets. This increase was directly attributable to accounting for the unrealized gain on the AGI Common Stock as further discussed in Note D. The offsetting tax benefit relating to a reduction of the deferred tax liability associated with the unrealized gain on the AGI Common Stock is recorded as an adjustment to shareholders' equity. The Registrant's net loss of $395,000 for the three month period ended June 30, 1996 was due to the factors set forth above. SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1995. There were no sales or mine operating expenses for the six month period ended June 30, 1996 and 1995 due to the suspension of mining in 1991 and the completion in 1992 of recoveries of gold from leaching of ore previously mined. Depreciation expense remained unchanged at $5,000 because machinery and equipment purchases were offset by fixed assets being fully depreciated. General and administrative expenses decreased by 4.9% for the six month period ended June 30, 1996 due to reduced office expenses. Professional fees increased 193% principally due to the increase in required legal and consulting services related to the pending litigation against AGI. Exploration expenses declined by $1,000 due to a reduction in lease expense for the Registrant's North Carolina properties. Interest and other, net was $13,000 of interest income for the first six months of 1996 compared to $22,000 of interest expense for the first six months of 1995. This was a result of no borrowings in 1996, while earning interest income on cash investments. The Registrant recorded a gain of approximately $104,000 on AGI stock sold during the six month period ending June 30, 1996, compared to a loss of $103,000 in the first six months of 1995 As a result of the Registrant's reduced AGI stock sales for the six months ending June 30, 1996, brokers fees and commissions were $4,000 compared to $41,000 in 1995. The Registrant has been amortizing the deferred gain, recorded as a result of the AGI option exercise, to income in amounts equal to the sum of the Registrant's share of the Venture's costs and expenses and the Registrant's other direct costs of participation in the Venture. Such costs and related amortization amounted to $333,000 for the six -11- 12 PIEDMONT MINING COMPANY, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS (CONT.) months ended June 30, 1996. This amount is $1,000 lower than in the six months ended June 30, 1995. The Registrant recorded a deferred income tax provision of $178,000 for the six months ended June 30, 1996 relating principally to an increase in the valuation allowance against deferred income tax assets. This increase was directly attributable to accounting for the unrealized gain on the AGI Common Stock as further discussed in Note D. The offsetting tax benefit relating to a reduction of the deferred tax liability associated with the unrealized gain on the AGI Common Stock is recorded as an adjustment to shareholder's equity. The Registrant's net loss of $701,000 for the six month period ended June 30, 1996 was due to the factors set forth above. FINANCIAL CONDITION The Registrant's financial condition and liquidity continue to decline in the first six months of 1996 due primarily to the accrual of its 37.5% share of the costs and expenses of the Venture and the funding of various corporate and legal costs without any offsetting revenues. The Registrant has a negative working capital of $638,000 at June 30, 1996. The Registrant's principal source of liquidity since the beginning of 1995 has been the sale of some of the shares of AGI Common Stock it had acquired upon AGI's exercise of its option with respect to the Haile Property. Proceeds from the sale of such shares were also used to repay previous borrowings against such shares made in 1993 and 1994. At June 30,1996, the Registrant held 192,300 shares of AGI Common stock and had approximately $536,000 in cash and cash equivalents. Further sales of or margin loans on the remaining shares of the AGI Common Stock held by the Registrant may be its only source of additional cash for the foreseeable future. Thus, further declines in the market price of the AGI Common Stock could severely affect the Registrant's liquidity. The closing price of AGI Common Stock on the New York Stock Exchange on June 30, 1996 was $5.50. The continued deterioration in the Registrant's cash position during the first six months of 1996 and increasing litigation costs have resulted in uncertainty whether the Registrant would be able to fund its ongoing corporate and legal expenses through the end of 1996 if the Registrant is required to pay the $1,370,000 arbitration award in favor of AGI before there is a satisfactory resolution of the Registrant's claims against AGI in its pending litigation. (See Part II, Item 1- Legal Proceedings.) The Registrant is vigorously pursuing its motions to stay or vacate the arbitration award, but on April 26, 1996 the Magistrate Judge to whom the Registrant's motions were referred entered a report to the Court recommending that the motions be denied and that judgement be entered against the Registrant on the arbitration award. The Registrant has filed objections and exceptions to the Magistrate Judge's report. Oral argument before the Court was held on June 14, 1996, and a ruling by the Court could be imminent. If a judgement is entered on the arbitration award prior to resolution of the Registrant's claims against AGI and the Registrant determines that enforcement of such judgement would impair its ability to prosecute its claims against AGI, it may be necessary for the Registrant to seek protection under the Federal Bankruptcy Code to avoid enforcement of the award. Even if the Registrant is not ultimately required to pay the arbitration award to AGI or the enforcement of the arbitration award is stayed pending resolution of the Registrant's claims against AGI, the Registrant will need additional financing if the -12- 13 PIEDMONT MINING COMPANY, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS (CONT.) Haile Mining Venture decides to develop and commence mining operations at the Haile Property pursuant to the Venture Agreement, or if prior to a production decision the Venture incurs substantially more expenditures for which the Registrant is responsible. Additional financing for such purposes could be sought through the issuance of additional shares of the Registrant's Common Stock or other equity securities, through debt financing, or through various arrangements (including joint ventures or mergers) with third parties. However, the Registrant currently has no commitments for any such additional financing, and there is no assurance that the Registrant could obtain any such additional financing if and when needed. If a production decision is made by the Haile Mining Venture, the Registrant's share of the Venture's total costs of developing and commencing mining operations at the Haile Property, as estimated in the Preliminary Feasibility Study prepared in December 1991 by AGI pursuant to the Option and Earn-In Agreement, could be as great as $30,000,000, depending upon the nature, size and scope of the operations and other variables, which have not yet been determined. Although the Registrant and AGI had agreed in their Venture Agreement to seek project financing for the development of the Haile Property if a production decision is made, there is no assurance that project financing will be available and the Registrant may be required to seek its own separate financing. -13- 14 PIEDMONT MINING COMPANY, INC. PART II. OTHER INFORMATION Item 1. Legal Proceedings. On March 29, 1995, the Registrant and its wholly-owned subsidiary, Kershaw Gold Company, Inc., as plaintiffs, filed a complaint in the Court of Common Pleas for Lancaster County, South Carolina (Case No. 95-155) against Amax Gold Inc., Lancaster Mining Company, Inc. and Haile Mining Company, Inc., alleging breach of contract by defendants Amax Gold Inc., Lancaster Mining Company, Inc. and Haile Mining Company, Inc., and tortious interference with contractual rights by defendant Amax Gold Inc. The complaint asked for actual and punitive damages as the Court and jury shall determine. A trial by jury has been demanded. A hearing on pending motions in the state court proceeding was held on October 5, 1995. On November 2, 1995, the court issued an order dismissing the claims of Piedmont Mining Company, Inc. (but not those of Kershaw Gold Company) against the defendants, and dismissing both plaintiffs' claims for breach of contract against Amax Gold Inc. (but not Kershaw Gold Company's claims against Lancaster Mining Company, Inc. and Haile Mining Company, Inc.), on the grounds that only the subsidiaries of the Registrant and of Amax Gold Inc. are parties to the contract in question. The order also stayed Kershaw Gold Company's claims for breach of contract against the two Amax Gold Inc. subsidiaries pending a determination of arbitrability by the arbitrators. Kershaw Gold Company's claim against Amax Gold Inc. for tortious interference with contract (including the Venture Agreement) was allowed to proceed. Amax Gold Inc.'s motion for a more definite statement of the tortious interference claim was granted. Discovery on the tortious interference claim was also authorized. The Registrant intends to vigorously prosecute its claims against Amax Gold Inc. and the two subsidiaries. The Registrant timely moved for reconsideration of the court's November 2, 1995 order. To date no hearing or ruling has occurred with respect to such motion. Following the court's November 2, 1995, order, the defendant, Amax Gold Inc., removed the claim against it by Kershaw to the Federal District Court for the District of South Carolina. Kershaw filed its amended complaint in this action on January 29, 1996 alleging tortious interference and civil conspiracy. Discovery was completed on August 1, 1996 and a trial date is anticipated before year end. On May 24, 1995, the defendant filed a demand for arbitration with the American Arbitration Association alleging a breach by plaintiffs of obligations under the Venture Agreement. The defendant sought to recover costs incurred, and has taken the position that "future costs are not waived, but are specifically preserved." The Registrant has taken the position before both the court and the American Arbitration Association that the dispute is not arbitrable under the terms of the Venture Agreement, and objected to the arbitration proceedings. Nevertheless, the arbitration proceedings were conducted in early 1996 before an arbitration panel of the American Arbitration Association. On March 5, 1996, the arbitration panel rendered an award calling for the Registrant to pay approximately $1,370,000 of the disputed expenses to a subsidiary of AGI. According to the award, the administrative and arbitrators' fees and expenses, totalling approximately $66,000, are to be borne equally by the parties. On or about March 6, 1996, Lancaster moved in the Federal District Court to have the order of the arbitrators confirmed in order to make such award a judgment of the court. On or about April 4, 1996, the Registrant filed a motion in the Federal District Court to stay the confirmation proceeding and a cross-motion to vacate the arbitration award. The Registrant is vigorously pursuing its motions to stay or vacate the arbitration award, but on April 26, 1996 the Magistrate Judge to whom the Registrant's motions were referred entered a report to the Court recommending that the motions be denied and that -14- 15 PIEDMONT MINING COMPANY, INC. Item 1. Legal Proceedings (cont.) Judgement be entered against the Registrant on the arbitration award. The Registrant has filed objections and exceptions to the Magistrate Judge's report. Oral argument was held on June 14, 1996, and a ruling by the Court could be imminent. If a judgement is entered on the arbitration award prior to resolution of the Registrant's claims against AGI and the Registrant determines that enforcement of such judgement would impair its ability to prosecute its claims against AGI, it may be necessary for the Registrant to seek protection under the Federal Bankruptcy Code to avoid enforcement of the award. The expenses that are the subject of the arbitration award are reflected as current liabilities on the Registrant's financial statements. Item 4. Submission of Matters to A Vote of Security Holders At the Annual Meeting of Shareholders of the Registrant held on June 5, 1996, the shareholders approved the election of Robert M. Shields, Jr., Earl M. Jones, William Feick, Jr., John W. Castles 3d, Joseph F. McDonald, and Christopher M.H. Jennings as Directors. The following table set forth the votes on each such matter:
FOR AGAINST WITHHELD BROKER NON-VOTES ------------------------------------------------------- Election of Directors: (by nominee) Robert M. Shields, Jr. 10,233,987 0 58,825 N/A Earl M. Jones 10,233,987 0 58,825 N/A William Feick, Jr. 10,233,987 0 58,825 N/A John W. Castles 3d 10,233,987 0 58,825 N/A Joseph F. McDonald 10,233,987 0 58,825 N/A Christopher M.H. Jennings 10,233,987 0 58,825 N/A
Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits 27 Financial Data Schedule (filed in electronic format only) (b) Reports on Form 8-K No reports on Form 8-K were filed during the three months ended June 30, 1996. -15- 16 PIEDMONT MINING COMPANY, INC. SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PIEDMONT MINING COMPANY, INC. Date: August 13, 1996 By /s/ Robert M. Shields, Jr. -------------------------- Robert M. Shields, Jr. Chairman and Chief Executive Officer Date: August 13, 1996 By /s/ Thomas L. Ross, III -------------------------- Thomas L. Ross, III Secretary and Controller (Chief Accounting Officer) -16- EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S FORM 10-QSB FOR THE QUARTER ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 536,000 1,058,000 28,000 0 0 1,626,000 269,000 0 3,653,000 2,264,000 0 0 0 11,157,000 (712,400) 3,653,000 0 0 5,000 5,000 531,000 0 (13,000) (523,000) (178,000) 0 0 0 0 (701,000) (.05) (.05)
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