-----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, M0mmUZcD9orNqAnqzoc8HrVq/HDmZgMNO6ctnRmPmTxmM/m2vrfqw2mjn+vBRAza kmGFhBwnZuUiYNbSQXS5xQ== 0001001277-97-000105.txt : 19971127 0001001277-97-000105.hdr.sgml : 19971127 ACCESSION NUMBER: 0001001277-97-000105 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971126 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SISKON GOLD CORP CENTRAL INDEX KEY: 0000876459 STANDARD INDUSTRIAL CLASSIFICATION: MINERAL ROYALTY TRADERS [6795] IRS NUMBER: 680254824 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-19502 FILM NUMBER: 97729555 BUSINESS ADDRESS: STREET 1: 350 CROWN POINT CR STE 100 CITY: GRASS VALLEY STATE: CA ZIP: 95945 BUSINESS PHONE: 9162734311 10QSB 1 FORM 10QSB FOR SISKON GOLD CORPORATION UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . Commission file no. 0-19502 SISKON GOLD CORPORATION (Exact name of registrant as specified in its charter) CALIFORNIA 68-0254824 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 350 Crown Point Circle, Suite 100 GRASS VALLEY, CA. 95945 (916) 273-4311 (Address of principal executive offices) (Zip Code) (Registrant's telephone number) Securities registered pursuant to Section 12(b) of the Act: None. Securities registered pursuant to Section 12(g) of the Act: CLASS A COMMON STOCK (Title of Class) Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . As of November 5, 1997, the number of Class A common stock outstanding was 32,261,289, the number of Series 1 Class B Common Stock outstanding was 638, and the number of Series A cumulative preferred stock outstanding was 241. Transitional Small Business Disclosure Format (check one): Yes . No X . 1 TABLE OF CONTENTS PART I - FINANCIAL INFORMATION ITEM 1. Financial Statements 2 ITEM 2. Management's Discussion and Analysis 2 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings 6 ITEM 2. Changes in Securities 6 ITEM 3. Defaults Upon Senior Securities 6 ITEM 4. Submission of Matters to a Vote of Security Holders 6 ITEM 5. Other Information 7 ITEM 6. Exhibits and Reports on Form 8-K 7 SIGNATURES ......... 8 FINANCIAL STATEMENTS 9 2 PART I ITEM 1. FINANCIAL STATEMENTS. The Consolidated Interim Financial Statements of Siskon Gold Corporation (the "Company") are attached at the end of this document and incorporated fully by this reference. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 With the exception of historical facts stated herein, the matters discussed in this report are "forward looking" statements that involve risks and uncertainties that could cause actual results to differ materially from projected results. Such "forward looking" statements include, but are not necessarily limited to, statements regarding anticipated levels of future production in tons of material produced as well as ounces of gold recovered from the mining operations of the Company, projected costs and expenditures relating to the Company's mining operations and exploration activities, and the availability of future debt and equity capital on commercially reasonable terms. Factors that could cause actual results to differ materially include, in addition to the other factors identified in this report, risks and uncertainties relating to general economic and political conditions, both domestically and internationally, the cyclical and volatile prices of gold, unanticipated ground and water conditions, unanticipated grade and geological problems, including lower than anticipated ore grades, metallurgical and other processing problems, availability of seasoned personnel and equipment, delays in the receipt of, or failure to receive necessary governmental permits or the renewals thereof, changes in the law and regulations governing gold mining specifically and environmental matters generally, results of financing efforts and market conditions, and other risk factors. Readers of this report are cautioned not to put undue reliance on "forward looking" statements which are, by their nature, uncertain as reliable indicators of future performance. The Company disclaims any intent or obligation to publicly update these "forward looking" statements, whether as a result of new information, future events or otherwise. (A) PLAN OF OPERATIONS The Company's ability to continue regular corporate activities and to continue as a "going concern" over the foreseeable future 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 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 mine but expects to pay the taxes due by the first quarter of 1998. 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. 3 The San Juan Mine produced 3,483 ounces of gold during the first five months of 1997. The average price for gold during this period of 1997 was $346 versus $395 for the same period of 1996. During the first week in April, 1997 unforeseen ground failures occurred in the area where mining operations were advancing in the eastern ore body which prevented any further progress from existing haulage ways. The number of mining crews were reduced and retreat mining was conducted back to the area of the underground plant. In early May the Company suspended mining operations and reviewed the feasibility and costs associated with alternative mining plans. The review indicated that 101,460 ounces of reserves are not economically mineable and that a new access tunnel would have to be made to develop and mine the west ore blocks. The existing tunnel to the east ore body is closed. The reduction in reserves resulted in a reduction in the carrying value of development costs and mineral rights of $5,575,190. After the reduction, the carrying value of development costs and mineral rights totalled $2,518,049 at September 30, 1997. Since the cessation of mining operations at the San Juan Mine, the price of gold has declined to the $310 per ounce level and there is no assurance that gold prices will recover to economically mineable levels or not decline further. The ability to develop and implement any future mining plans, is dependant upon the Company's ability to raise additional capital through equity or debt offerings. The prospects of obtaining additional capital or joint venture partners in the near future is unlikely. Consequently, the Company has decided to put its existing properties into a care and maintenance basis and has terminated the contractual agreements with its officers effective August 15,1997. Severance costs of $821,000 were incurred during the quarter as a result of contract terminations. Mr. Callaway will continue to act as President and Chief Executive Officer on a month to month basis. In August the company entered into an agreement with Cherokee Development Corporation, A Corporation owned by Tim Callaway, whereby Siskon would have contributed mining equipment and supplies into Cherokee in exchange for an equity and royalty interest in the Colombo Mine Project. In August 1997 the Company sold equipment and supplies to the President of the Company for $385,300. A cash payment of $89,349 was received and $228,000 in debt was assumed. In addition, the balance of $67,951 is due in cash, December 15, 1997. In November the Board reversed its actions relative to the Cherokee deal and entered into a contract with an equipment liquidation company who have guaranteed to sell the mobile mining equipment for $1,027,200 and have agreed to loan 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 a write down of the carrying value of plant and equipment to net realizable value of $3,174,396 was made in the second quarter. After the reduction, the carrying value of plant and equipment amounted to $988,642 at September 30, 1997. It is reasonably possible that further losses could occur on transfer in accordance with generally accepted accounting principles. The Company's ability to continue corporate activities is dependant upon generating sufficient working capital from selling timber at the Gray Eagle and Iron Creek properties, reducing overhead costs, Sales of equipment, sales of property, sales of royalty interests and raising additional capital through equity or debt offerings. No assurance can be given that these activities will generate sufficient working capital. The debt secured by the San Juan and Big Horn properties amounting to $8,922,169 at September 30, 1997, matures November 15, 1998. The ability of the Company to meet these debt requirements is dependant upon the successful renegotiation or refinancing of the debt. No assurance can be given that the Company will successfully renegotiate or refinance the debt. Due to the price decline of the Company's Class A common stock the NASDAQ National Market System removed the listing of the Company's Class A common stock effective April 18, 1997. The Company's Class A common stock is now quoted on the OTC Bulletin Board under the symbol "SISK". 4 (B) FINANCIAL CONDITION AND RESULTS OF OPERATIONS YEAR TO DATE COMPARISON Siskon had cash on hand of $104,516 and $421,469 at September 30, 1997 and 1996 respectively. Cash used by operating activities for the first nine months of 1997 totalled $1,455,563 versus $1,289,520 for the first nine months of 1996. Cash provided by investing activities during the first nine months of 1997 totalled $1,039,326 versus $303,795 provided during the first nine months of 1996. During 1997, $57,500 was received from the sale of properties, $650,885 from the sale of equipment, note collections of $227,761 and redemption of bonds of $40,000 as compared to $303,370 from the sale of equipment and note collections of $425 during the first nine months of 1996. 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 $25,000 cash and a note receivable of $75,000 which was collected in October 1997. Cash used in investing activities during the first nine months of 1997 totalled $53,767 as compared to $2,804,800 in 1996. During 1997, $30,806 was expended on equipment at the San Juan Mine and $22,961 on permitting costs at the Big Horn Mine as compared with $500,688 for equipment, $1,941,320 for development and $160,772 for bonds at the San Juan Mine during 1996 and $202,020 for permitting at the Big Horn Mine during 1996. In mid-May 1996, construction of the San Juan Mine was completed. Cash provided by financing activities during the first nine months of 1997 totalled $450,000 versus $500,000 during the first nine months of 1996 both from the issuance of convertible debt. On February 18, 1997 the Company issued convertible debentures bearing interest at 8% and a maturity date of February 1, 1999. During the first nine months of 1997, $1,949,020 of convertible debt was converted into 15,569,115 shares of Class A common stock and 512 shares of Series A convertible preferred stock and 241 shares of the preferred stock thus issued were converted into 3,321,031 shares of Class A common stock. Cash used in financing activities during the first nine months of 1997 totalled $688,086 as compared to $538,738 during the first nine months of 1996. During 1997, $574,572 was paid on equipment and land notes and $113,514 for registration and issuance costs. During 1996 $48,964 was paid on capital lease obligations, $442,657 on equipment and land notes and $47,117 on registration and issuance costs. Siskon incurred a net loss of $12,611,572 for the first nine months of 1997 as compared to a net loss of $2,012,316 for the first nine months of 1996. During the first nine months of 1997 revenues of $1,206,096 resulted from the sale of 3,483 ounces of fine gold at an average price of $346 per ounce. Production costs, non-cash costs and royalty expense totalled $1,672,674, $743,825 and $24,273, respectively. A property, plant and equipment impairment loss of $8,749,586 resulted from the reduction in the reserves at the San Juan Mine and a reduction of mining plant and equipment to its net realizable value. Subsequent to May 30, 1997, no revenues from gold sales were received as mining operations at the San Juan Mine had ceased. Commencing in Mid-May 1996, revenues, production costs, non-cash costs and royalties at the San Juan Mine were reflected in operations. During the first nine months of 1996 revenues of $1,344,833 resulted from the sale of 3,497 ounces of fine gold at an average price of $385 per ounce. Production costs, non-cash costs and royalty expense totalled $2,051,641, $532,607 and $26,785, respectively. During the first six months of 1996 while the Company's operations were in the development stage gold revenues received from 5,003 ounces of gold amounting to $1,993,170 at an average price of $398 were credited against capitalized costs. Timber sales were $40,000 in the first nine months of 1997 from Gray Eagle versus $450,000 in the first nine months of 1996 from San Juan. Royalties were $48,674 in the first nine months of 1997 versus $50,528 in the first nine months of 1996. During the first quarter of 1997 the Company sold its Montana oil and gas properties, during the second quarter of 1997 Cominco cancelled its lease of the Iron Creek property and during the third quarter of 1997 the Company sold its Humbolt Starlight and Aurora royalty interests which comprised the majority of the royalty revenue. Future royalties from the remaining properties are negligible. 5 General and administrative expenses were $1,545,543 in the first nine months of 1997 as compared with $905,242 during the first nine months of 1996. Expenses for 1997 reflect the severance costs of the executive contract terminations. Exploration and project costs were $105,484 in the first nine months of 1997 versus $26,785 in the first nine months of 1996. The increase related primarily to costs of the Gray Eagle Mine litigation and exploration in Northern California and Latin America. The gain on the sale of property was $157,500 during the first nine months of 1997 from the sale of the Aurora property for $100,000, the Humbolt Starlight property for $40,000 and the Montana oil and gas royalty interests for $17500 versus $1,250 from the sale of the Croman property during the first nine months of 1996. During the first nine months of 1997 equipment was sold for a gain of $6,780 versus a loss of $32,333 during the first nine months of 1996. In August 1997 the Company sold equipment and supplies to the President of the Company for $385,300. A cash payment of $89,349 was received and $228,000 in debt was assumed. In addition, the balance of $67,951 is due in cash, December 15, 1997. The discount on note receivable in 1997 amounting to $181,547 resulted from the Company agreeing to accept $112,000 in cash as payoffs on the notes. Interest expense during the first nine months of 1997 amounted to $1,089,884 including amortization of the discount of the price of the stock underlying convertible debt of $287,923. During the first nine months of 1996 interest expense was $334,779 after capitalization of interest costs of $562,757 to property, plant and equipment. Interest and miscellaneous income was $42,284 in the first nine months of 1997 as compared with $89,135 in the first nine months of 1996 reflecting higher cash balances during 1996. The Company believes that its business and operations were not materially affected by inflation during the first nine months of 1997 and 1996. QUARTER TO QUARTER COMPARISON Siskon incurred a net loss of $1,318,248 for the third quarter of 1997 compared to a net loss of $1,057,372 for the third quarter of 1996. During the third quarter of 1997 there were no gold revenues as the mine had been closed and costs of $198,343 for care and maintenance. During the third quarter of 1996 revenues of $735,490 resulted from the sale of 1,914 ounces of fine gold at an average price of $384 per ounce. Production costs, non-cash costs and royalty expense totalled $1,412,571, $320,815 and $14,633, respectively. Timber sales were $40,000 in the third quarter of 1997 from Gray Eagle versus $450,000 in the third quarter of 1996 from San Juan. Royalties were $14,256 in the third quarter of 1997 versus $12,471 in the second quarter of 1996. During the third quarter of 1997 the Company sold its Humbolt Starlight and Aurora royalty interests which comprised the majority of the royalty revenue. Future royalties from the remaining properties are negligible. General and administrative expenses were $1,039,567 in the third quarter of 1997 as compared with $233,912 during the third quarter of 1996. Expenses for 1997 reflect the severance costs of the executive contract terminations. Exploration and project costs were $22,400 in the third quarter of 1997 versus $14,633 in the third quarter of 1996. The increase resulted primarily from costs of the Gray Eagle Mine litigation. The gain on the sale of property was $140,000 during the third quarter of 1997 from the sale of the Aurora property for $100,000 and the Humbolt Starlight property for $40,000. There were no sales in the third quarter of 1996. During the third quarter of 1997 the gain on sale of equipment amounted to $146,569 versus a loss of $34,453 for the third quarter of 1996. During the second quarter of 1997 the Company wrote its equipment down to net realizable value. Interest expense during the third quarter of 1997 amounted to $262,371 versus $233,500 during the third second quarter of 1996 reflecting higher loan balances during 1997. Interest and other income was $5,750 in the third quarter of 1997 as compared with $18,043 in the third quarter of 1996 reflecting higher cash balances during 1996. 6 PART II ITEM 1. LEGAL PROCEEDINGS As previously disclosed in the Company's 10-KSB for the year ended December 31, 1997. In May 1991, the Company received a request from the California Regional Water Quality Control Board ("CALRWQCB") 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 for the prior owners and operators of the property. On March 11, 1997 an action in U.S. District Court for the Eastern District of California, case number CIVS 970357 WBSJFM, was brought against the Company by the California Sportfishing Protection Alliance ("CALSPA") 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 Norandas 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. ITEM 2. CHANGES IN SECURITIES Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On August 7, 1997, the Company held its Annual Meeting of Shareholders to elect four directors to approve an increase in the number of shares to 300,000,000 shares. The shareholders approved proposals 1 and 2 and turned down proposals 3 and 4. PROPOSAL NO. 1 - ELECTION OF DIRECTORS NOMINEE FOR WITHHELD ABSTAINED TOTAL Timothy A. Callaway 22,868,605 2,318,375 1,610,566 26,797,546 Michael K. Epstein 22,861,211 2,325,769 1,610,566 26,797,546 Scott E. Bartel 22,885,858 2,301,122 1,610,566 26,797,546 David A. Lawler 22,878,571 2,308,409 1,610,566 26,797,546 7 PROPOSAL NO. 2 - INCREASE NUMBER OF SHARES TO 300,000,000 SHARES FOR WITHHELD ABSTAINED TOTAL 22,441,971 2,745,009 1,610,566 26,797,546 PROPOSAL NO. 3- INCREASE STOCK OPTION PLAN BY 10,000,000 SHARES FOR WITHHELD ABSTAINED TOTAL 10,291,322 3,882,639 12,623,585 26,797,546 PROPOSAL NO. 4 - REINCORPORATE IN THE STATE OF NEVADA FOR WITHHELD ABSTAINED TOTAL 11,976,678 2,197,283 12,623,585 26,797,546 Proposals 3 and 4 needed 13,398,773 votes to be approved and were thus not approved ITEM 5. OTHER INFORMATION Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS Not applicable. (B) REPORTS ON FORM 8-K 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. 8 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 November 26, 1997 TIMOTHY A. CALLAWAY Timothy A. Callaway, President, CEO and Chairman of the Board 9 FINANCIAL STATEMENTS 10 FORM 10-QSB - ITEM 1 SISKON GOLD CORPORATION AND SUBSIDIARY LIST OF FINANCIAL STATEMENTS The following consolidated financial statements of the Company are included in response to Item 1: Consolidated Balance Sheets - September 30, 1997 (Unaudited) and December 31, 1996 11 Consolidated Statements of Operations - (Unaudited) Nine Months Ended September 30, 1997 and 1996 12 Consolidated Statements of Cash Flows - (Unaudited) Nine Months Ended September 30, 1997 and 1996 13 Notes to Consolidated Financial Statements 14 11 SISKON GOLD CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 1997 (UNAUDITED) AND DECEMBER 31, 1996 1997 1996 ASSETS CURRENT ASSETS Cash and cash equivalents $104,516 $812,606 Notes and Accounts receivable 143,891 6,080 Inventories 1,000 230,875 Prepaid expenses and other 138,086 400,792 ---------- ----------- Total Current Assets 387,493 1,450,353 NOTES RECEIVABLE - 292,812 PROPERTY, PLANT AND EQUIPMENT, net 6,536,138 16,653,046 OTHER ASSETS 265,619 428,569 ---------- ----------- TOTAL ASSETS $7,189,250 $18,824,780 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accrued liabilities $1,123,820 $773,306 Current portion of long-term debt 22,282 292,248 ---------- ---------- Total Current Liabilities 1,146,102 1,065,554 LONG TERM DEBT ($9,011,518 in 1997 and $9,772,640 in 1996 to related parties) 9,035,590 10,692,224 OTHER LIABILITIES 171,747 60,551 ---------- ---------- Total Liabilities 10,463,040 11,818,329 ---------- ---------- COMMITMENTS AND CONTINGENCIES (Note 9) SHAREHOLDERS' EQUITY Capital Stock Preferred stock, $.001 par value; Convertible Series A: 241 in 1997; 0 in 1996 - Common stock, $.001 par value; issued and outstanding: Class A: 30,791,524 in 1997; 11,989,662 in 1996 30,792 11,989 Convertible Class B Series 1: 638 in 1996 and 1995 1 1 Additional paid-in capital 56,170,752 53,730,633 Stock subscription receivable (344,803) (326,812) Accumulated deficit (59,020,932) (46,409,360) ---------- ---------- Total Shareholders' Equity (3,164,189) 7,006,451 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $7,189,250 $18,824,780 ========== ========== See notes to consolidated financial statements. 12 SISKON GOLD CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Three months ended September 30 Nine months ended September 30 1997 1996 1997 1996 REVENUES Gold sales $ - $735,490 $1,206,096 $1,344,833 Timber Sales 40,000 450,000 40,000 450,000 Royalties and leases 14,256 12,471 48,674 50,528 ----------- --------- ---------- ---------- Total Revenues 54,256 1,197,961 1,294,770 1,845,091 ----------- --------- ---------- ---------- OPERATING EXPENSES Production 198,343 1,412,571 1,672,674 2,051,641 Depreciation, depletion and 54,742 320,815 743,825 532,607 amortization Property, plant and equipment - - 8,749,586 impairment loss General and administrative 1,039,567 233,912 1,545,543 905,242 Royalties - 23,492 24,273 64,405 Exploration and project costs 22,400 14,633 105,484 26,785 ------------ --------- --------- ---------- Total Operating Expenses 1,315,052 2,005,423 12,841,475 3,580,680 ------------ --------- ---------- ---------- OPERATING LOSS (1,260,796) (807,462) (11,546,705) (1,735,589) ------------ --------- ---------- ---------- OTHER (EXPENSE) INCOME Gain on sale of property 140,000 - 157,500 1,250 (Loss) gain on sale of 146,569 (34,453) 6,780 (32,333) equipment Discount on Note Receivable (181,547) (181,547) Interest expense (262,371) (233,500) (1,089,884) (334,779) Interest and other income 5,150 18,043 42,284 89,135 ----------- --------- --------- --------- Total Other (Expense) (151,599) (249,910) 1,064,867 (276,727) Income ----------- --------- ---------- --------- NET LOSS $(1,412,395) $(1,057,372) $(12,611,572) $(2,012,316) =========== =========== ============ =========== NET LOSS PER SHARE $(0.05) $(0.10) $(0.58) $(0.19) =========== =========== ============ =========== WEIGHTED AVERAGE NUMBER OF SHARES 29,327,207 11,056,207 21,599,971 10,754,721 ========== =========== ============ ===========
See notes to consolidated financial statements. 13 SISKON GOLD CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $(12,611,572) $(2,012,316) Adjustments to reconcile net loss to net cash used in operating activities Issuance of common stock for services 73,973 50,000 Issuance of common stock for interest - 280,211 Discount on price of stock underlying convertible debt 287,923 - Depreciation, depletion and amortization 743,825 532,607 Property, plant and equipment impairment loss 8,749,586 - (Gain) on sale of property (157,500) - Loss (gain) on sale of equipment (6,780) 31,083 Discount on Note Receivables 181,547 - Accrued interest on convertible debt 584,354 - Amortization of deferred financing costs 96,531 - Accrued interest receivable (17,991) (13,506) Decrease (increase) in accounts receivable 2,993 (1,520) Decrease (increase) in inventories 229,875 (12,696) Decrease in prepaid expenses 66,602 11,731 (Increase) in accounts payable and accrued liabilities 350,514 (155,114) Reclamation Incurred (29,443) - --------- -------- Net cash used in operating activities (1,455,563) (1,289,520) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of property 57,500 - Proceeds from sale of equipment 650,885 303,370 Proceeds from sale of land 63,180 - Collections on notes receivable 227,761 425 Purchase of equipment (30,806) (500,688) Deferred development costs (22,961) (2,143,340) Decrease (Increase) in reclamation bonds 40,000 (160,772) ---------- --------- Net cash provided by (used in) investing activities 985,559 (2,501,005) ---------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of convertible debt 450,000 500,000 Payments of obligations under capital leases - (48,964) Payments of long term debt (574,572) (442,657) Registration and issuance costs (113,514) (47,117) ---------- --------- Net cash provided by (used in) financing activities (238,086) (38,738) ---------- --------- DECREASE IN CASH (708,090) (3,829,263) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 812,606 4,251,032 ---------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $104,516 $421,469 ========== ========= See notes to consolidated financial statements. 14 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 dor, the Company's principle product, is produced and sold in the United States. At September 1997, the Company owned interests in various mineral properties located in the Western United States. The Company's operations are conducted in one business segment: mineral resource exploration, development and production. In early May the Company suspended mining operations and reviewed the feasibility and costs associated with alternative mining plans. The review indicated that 101,460 ounces of reserves are not economically mineable. The reduction in reserves resulted in a reduction in the carrying value of development costs and mineral rights of $5,575,190. Should the Company be unable to raise additional capital and remain in operation, it may be necessary to further write down the carrying value of its development costs and mineral rights totalling $2,518,049 at September 30, 1997 resulting in additional losses to the Company. Since the cessation of mining operations at the San Juan Mine, the price of gold has declined to the $310 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. In August the company entered into an agreement with Cherokee Development Corporation, A Corporation owned by Tim Callaway, whereby Siskon would have contributed mining equipment and supplies into Cherokee in exchange for an equity and royalty interest in the Colombo Mine Project. In November the Board reversed its actions relative to the Cherokee deal and entered into a contract with an equipment liquidation company who have guaranteed to sell the mobile mining equipment for $1,027,200 and have agreed to loan 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 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 $988,642 at September 30, 1997. It is reasonable possible that further losses could occur on transfer in accordance with generally accepted accounting principles. The Company's ability to continue corporate activities and to fund the acquisition, exploration and development of these mineral properties over the foreseeable future is dependant upon generating sufficient working capital from sales of timber, reducing overhead costs, sales of royalty interests and raising additional capital through equity or debt offerings. No assurance can be given that these activities will generate sufficient working capital, or that the Company will remain in operation for the next twelve months. The accompanying interim consolidated financial statements have been prepared by the Company without audit and contain all adjustments which, in the opinion of management, are necessary to present fairly the Company's financial position as of September 30, 1997 and December 31, 1996 and the results of its operations and cash flows for the interim periods ending September 30, 1997 and 1996. Such adjustments consist of normal, recurring adjustments. The accompanying interim consolidated financial statements do not contain all disclosures required by generally accepted accounting principles for annual financial statements. It is suggested that these financial statements be read in conjunction with the audited consolidated financial statements and the related notes contained in the Company's Annual Report on Form 10-KSB, for the year ended December 31, 1996. Operating results for interim periods are not necessarily indicative of those expected for a full year. 15 2. RECENT ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") 130, "Reporting Comprehensive Income." SFAS 130 establishes standards for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. SFAS 130 is effective for fiscal years beginning after December 15, 1997. The Company does not believe that SFAS 130 will have a material impact on its financial statements. In July 1997, the FASB issued SFAS 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS 131 requires publicly-held companies to report financial and other information about key revenue producing segments of the entity for which such information is available and is utilized by the chief operating decision maker. Specific information to be reported for individual segments includes profit or loss, certain revenue and expense items and total assets. A reconciliation of segment financial information to amounts reported in the financial statements would be provided. SFAS 131 is effective for fiscal years beginning after December 15, 1997. The Company does not believe that SFAS 131 will have a material impact on its financial statements. 3. INVENTORIES Inventories at September 30 1997, and December 31, 1996 were as follows: 1997 1996 Gold dore' inventory $ - $ 81,380 Materials and supplies 1,000 149,495 $ 1,000 $ 230,875 ========= ========== 4. NOTES RECEIVABLE In September 1997 the Company agreed to discount two notes receivable for cash of $112,000. The Company recognized a loss of $181, 547 on the transaction. 5. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment at September 30 1997, and December 31, 1996 were as follows: 1997 1996 Property acquisition and development costs San Juan $20,747,398 $ 20,747,399 Big Horn 1,139,509 1,179,728 Gold Point 95,000 95,000 Mining equipment 3,852,458 5,442,216 Plant 1,312,166 1,326,380 Office equipment, furniture and vehicles 64,262 145,699 ----------- ----------- 27,210,793 28,936,422 Less: accumulated depreciation, depletion and amortization 2,304,722 1,987,859 property, plant and equipment impairment 18,369,933 10,295,517 loss ----------- ----------- $6,536,138 $16,653,046 =========== =========== 16 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 $25,000 cash and a note receivable of $75,000 which was collected in October 1997. 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. A cash payment of $89,349 was received and $228,000 in debt was assumed. In addition, the balance of $67,951 is due in cash, December 15, 1997. 6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES In August 1997 the Company terminated the employment of its two officers. The Company recognized severance costs of $821,000 pursuant to their employment agreements. At September 30, 1997 $791,000 was owed to Mr. Callaway. 7. CONVERTIBLE DEBT On February 18, 1997 the Company issued convertible notes for $450,000 with interest at 8%, due February 1, 1999. The Company issued the convertible debentures in reliance upon an exemption from the registration provisions of the Securities Act of 1933, as amended, provided for in Regulation S promulgated thereunder. The debentures were offered and sold in an "offshore" transaction to qualified persons who were not "U.S. Persons," as defined in Regulation S. At the option of the holder, the principle and accrued interest may be converted into shares of the Company's Class A common stock after forty five days from the date of issuance at a conversion price equal to the lesser of seventy five percent of the market price of the common stock on February 18, 1997 or on the date of conversion. The market price for the applicable date is defined as the average closing bid price of the common stock for five days preceding that date. During the first nine months of 1997, $1,949,020 of convertible debt was converted into 15,569,115 shares of Class A common stock and 512 shares of Series A convertible preferred stock and 253 shares of the preferred stock thus issued were converted into 3,231,031 shares of Class A common stock. From October 1, 1997 to November 5, 1997, an additional 21 shares of preferred stock has been converted into 1,469,765 shares of Class A common stock. As of November 5, 1997, $15,624 of debt and 241 shares of Series A convertible preferred stock were unconverted. 8. CAPITAL STOCK, STOCK OPTIONS AND WARRANTS Stock option and warrant transactions for the six months ended September 30, 1997 were as follows:
Number of CLASS A Exercise Exercisable SHARES PRICE PER SHARE OPTIONS Options outstanding at: December 31, 1996 723,500 $2.00 - $4.94 501,000 Granted 3,000 0.78 3,000 Cancelled (207,000) 0.78 - 4.94 (62,000) Vested - 2.06 - 3.05 55,000 ------- -------- September 30, 1997 519,500 $0.78 - $4.94 497,000 ======= ========= Warrants outstanding at December 31, 1996 2,819,083 $2.82 - $7.50 2,819,083 Cancelled (75,000) 7.50 (75,000) --------- --------- September 30, 1997 2,744,083 $2.82 - $6.00 2,744,083 ========= =========
17 9. COMMITMENTS AND CONTINGENCIES ENVIRONMENTAL In May 1991, the Company received a request from the California Regional Water Quality Control Board to prepare an environmental site assessment report on a site known as the Croman Mill Site, located in Siskiyou County, California. In April 1996, state and federal environmental officials and a representative of the Company conducted a site visit. Several soil and water samples were taken by the officials as well as the Company. The Croman Mill Site is a historical mining mill site which contains stockpiled mine tailings from mining operations conducted by prior operators and owners and represents a "pre-existing" condition in relation to the time the Company owned the property. The Company owned the site from 1989 to June 1996 and did not conduct any mining related activities on the site during that time. 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 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. 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. 18 10. SUBSEQUENT EVENTS The Company entered into a contract with an equipment liquidation company who have guaranteed to sell the mobile mining equipment with an approximate book value of $988,642 for $1,027,200 and have agreed to loan the company $907,000 at 8.6% secured by the equipment and payable from the proceeds from the sale of the equipment. EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 10-QSB FOR THE PERIOD ENDED SEPTEMBER 30, 1997 FOR SISKON GOLD CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1996 SEP-30-1997 104,516 0 143,891 0 1,000 387,493 6,536,138 (2,304,722) 7,189,250 1,146,102 9,035,590 0 1 30,792 55,825,949 7,189,250 1,246,096 1,294,770 1,672,674 12,841,475 49,064 0 (1,089,884) (12,611,572) 0 (12,611,572) 0 0 0 (12,611,572) (0.58) (0.58)
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