<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended 07-31-96 Commission File No. 1-3896
BULLION MONARCH COMPANY
(Exact Name of registrant as specified in its Charter)
UTAH 82-0198422
- --------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3967 FOOTHILL DR.
PROVO, UT 84604
- ------------------------- -------------------
(Address of principal (Zip Code)
executive offices)
(801) 765-9301
-------------------------------
(Registrant's telephone number)
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.
(1) Yes X No (2) Yes X No
--- --- --- ---
COMMON STOCK NO PAR VALUE 18,772,943
- -------------------------- -------------------------------
CLASS OUTSTANDING AT JULY 31, 1996
<PAGE>
QUARTERLY FINANCIAL REPORT
BULLION MONARCH COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ITEM 1. FINANCIAL STATEMENTS
July 31, April 30,
ASSETS 1996 1996
Current Assets:
Cash $ 50,030 $ 169,654
Receivables:
Note 1,513,397 1,513,397
Interest 210,067 198,306
---------- ----------
Total Receivables $1,723,464 $1,882,357
---------- ----------
TOTAL CURRENT ASSETS $1,773,494 $1,882,357
Investment in Equity Securities, at lower
of cost or market 133,562 133,562
Mining Properties, at cost 405,781 368,281
Property, Plant & Equipment at cost,
net of accumulated depreciation 91,415 97,580
Other Assets 5,000 5,000
---------- ----------
TOTAL ASSETS $2,409,252 $2,486,780
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable $ 14,537 15,741
Accrued expenses 32,631 63,935
Amounts due related parties 64,741 41,451
Deferred income taxes payable 271,674 271,674
---------- ----------
TOTAL CURRENT LIABILITIES $ 383,583 $ 392,801
Commitments and Contingent Liabilities
Stockholder's Equity:
Common stock, no par value; authorized
100,000,000 shares; issued 18,772,943
shares. 3,398,105 3,398,105
Unrealized gain on securities available for
sale 116,866 116,866
Accumulated Deficit (1,483,795) (1,415,485)
Less 7,500 Treasury shares at cost 5,507 5,507
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 2,025,669 2,093,979
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $2,409,252 $2,486,780
---------- ----------
---------- ----------
<PAGE>
BULLION MONARCH COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
Three Months
Ended July 31,
---------------
1996 1995
---- ----
Revenues:
Rents $ 100 -
Royalties 5,000 5,000
Gain on sale of mining properties - -
Interest and other income 7,835 9,148
--------- ---------
TOTAL REVENUES 12,935 14,148
Costs and Expenses:
Mining Costs 95,121 549
General and administrative expenses 105,108 11,267
Interest Expense - -
Depreciation Expenses 6,271 5,413
--------- ---------
TOTAL COSTS AND EXPENSES 206,500 17,229
--------- ---------
Income (Loss) From Operations Before
Provisions for Income Taxes (193,565) (3,081)
Provisions for Income Taxes - -
--------- ---------
Income (Loss) from Operations (193,565) (3,081)
Extraordinary Item - Utilization of Net
Operating Loss Carry forward - -
NET INCOME (LOSS) $(193,565) (3,081)
--------- ---------
--------- ---------
Earnings Per Share:
Income (loss) before
extraordinary item $ (.01) NIL
Extraordinary item - -
--------- ---------
NET INCOME (LOSS) $ (.01) NIL
--------- ---------
--------- ---------
<PAGE>
BULLION MONARCH COMPANY
CONSOLIDATED STATEMENT OF CASH FLOW
OPERATING ACTIVITIES: Three Months
Ended
July 31,
------------
1996 1995
---- ----
Net Income (Loss) $(193,565) $(3,081)
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation 6,271 5,413
(Increase) or Decrease in current assets 108,863 3,065
Increase or (Decrease) in current liabilities (9,218) (2,819)
--------- -------
Net cash provided or (used) by operations (87,649) 2,578
FINANCING & INVESTING ACTIVITIES:
Increase or (Decrease) in minority interest - -
(Increase) or decrease on other assets (31,335) (6,188)
Net cash provided or (used) in financing and
investing - -
Increase or (decrease) in cash (100,700) (1,493)
Cash at beginning of period 169,654 5,103
--------- -------
Cash at end of period $ 50,030 $ 3,610
--------- -------
--------- -------
<PAGE>
BULLION MONARCH COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
July 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Principles of Consolidation and Operations:
The consolidated financial statements include the accounts of Bullion
Monarch Company (The Company) and its 50% owned subsidiary Monarch
Milling joint venture. The Company owns mining properties in Nevada,
Utah and Montana. During the year ended April 30, 1996 the Articles
of Incorporation were amended to change the authorized number of
shares and the par value of the shares that may be issued to one
hundred million, no par value shares.
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the
consolidated financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets
and liabilities as of the date of the balance sheet and revenues and
expenses for the period. Actual results could differ from those
estimates.
B. Mining Properties:
The total investment in mining properties will be amortized on a
composite unit-of-production method. As of April 30, 1996 and 1995,
no amortization has been reflected in the accompanying financial
statements since such amounts have been determined to be insignificant
and the Company has essentially been in a non-operating mode.
The Company capitalizes costs for mining properties by individual
property and defers such costs for later amortization only if the
prospects for economic production are reasonably certain. Capitalized
costs are expensed in the period when the determination has been made
that economic production does not appear reasonably certain.
C. Property, Plant and Equipment and Related Accumulated Depreciation:
Property, plant and equipment are stated at cost. Maintenance and
repair expenditures are charged to income as incurred; renewals and
betterments are capitalized. Gains and losses on sales or other
dispositions of property are reflected in earnings, and adjustments of
the accumulated reserves for depreciation are made upon retirement of
property. Depreciation is as follows:
Method Lives
------ -----
Machinery and Equipment ACRS/ MACRS 5-10 years
Office Furniture ACRS/ MACRS 5-7 years
Mill and Buildings Straight-Line 15-20 years
<PAGE>
BULLION MONARCH COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
D. Income Taxes:
Deferred income taxes are recognized for income and expense items that
are reported in different years for financial reporting purposes and
income tax purposes. The financial statements currently have three
significant timing differences which necessitate deferred tax assets
or liabilities. A deferred federal tax liability arises from
reporting earnings on the sale of two mining properties (note 5) and a
partnership interest (note 2) on the installment method of reporting
which is different for income tax purposes than it is for financial
statement purposes. At April 30, 1996 Bullion had a deferred tax gain
of $1,092,000 on the mining properties sale and $262,000 associated
with the partnership interest sale. At that date Bullion had a net
operating loss carry forward of approximately $ 752,000. In applying
the principles of FAS No. 109 Bullion offset net operating loss Carry
forward against the deferred gains of $1,092,000 and $262,000. Using
a tax rate of 39% for the deferred gains and 34% for the federal net
operating loss Carry forward, a net deferred tax liability of $271,674
resulted.
E. Per Share Data:
Per share data is based on the weighted average number of common
shares outstanding during each period based on the weighted average
number of common shares outstanding during each period.
F. Cash and Cash Equivalents:
For purposes of the consolidated statements of cash flows, the Company
considers short-term investments purchases with maturities at date of
purchase of three months or less to be cash equivalents.
G. Reclassifications:
Certain 1995 amounts have been reclassified to conform with 1996
classifications. Such reclassifications had no effect on reported net
income.
2. MONARCH MILLING-JOINT VENTURE
In 1979, Bullion entered into an agreement with PBL Mining, an Illinois
partnership, subsequently changed to American Mining Trust (AMT), wherein
Bullion sold a 50% interest in a joint venture called Monarch Milling to
AMT. Monarch Milling was established to own, refurbish and operate a
concentrating mill located at Austin, Lander County, Nevada.
In 1980 AMT sold its 50% interest in Monarch Milling to Bullion Metals, a
Nevada
<PAGE>
BULLION MONARCH COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
corporation subsequently changed to Gold Standard of Nevada, Inc.
(Gold Standard). In conjunction with the sale, Gold Standard assumed
the AMT note with Bullion. The note has
2. MONARCH MILLING-JOINT VENTURE, CONTINUED
a current balance of $313,397, bears interest at 10%, and requires annual
payments of $60,000. Gold Standard is currently in default on the payment
on the note and interest. For financial statement presentation, Gold
Standard's minority interest in the consolidated financial statements has
been reclassified against interest receivable. No allowance for doubtful
collectability of the note and interest has been reflected in the financial
statements since it is management's opinion that Gold Standard's equity in
the market value of the joint-venture assets (primarily the mill in Austin,
Nevada) is sufficient to cover any indebtedness from Gold Standard to
Bullion. The receivables have been classified as current since they are in
default and therefore currently due, even though their collectability
within the next fiscal year is doubtful, unless the mill is sold.
Negotiations are currently on-going with two groups who are interested in
refurbishing and operating the mill under a joint venture agreement with
Monarch Milling or actually purchasing the mill.
3. PROPERTY, PLANT AND EQUIPMENT
Property plant and equipment is summarized as follows:
Accumulated Net
Cost Depreciation Value
---- ------------ -----
April 30, 1996:
Land $ 6,690 - 6,690
Vehicle 22,000 3,060 18,940
Machinery and equipment 123,668 118,467 5,201
Office Furniture 5,999 5,888 111
Mill and buildings 763,162 696,524 66,638
--------- -------- -------
$ 921,519 824,268 97,580
Accumulated Net
Cost Depreciation Value
---- ------------ -----
July 31, 1996:
Land $ 6,690 - 6,690
Vehicle 22,000 3,825 18,175
Machinery and equipment 123,668 118,467 5,201
Office Furniture 5,999 5,888 111
Mill and buildings 763,162 701,924 61,238
--------- -------- -------
$ 894,094 830,104 91,415
<PAGE>
BULLION MONARCH COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
4. INVESTMENT IN EQUITY SECURITIES
Bullion received 225,000 shares of a private company's stock in a
previous year as partial payment from the sale of two mining properties.
The shares have been valued at a nominal value of $.10 per share for
financial statement purposes through April 30, 1995. During the year ended
April 30, 1996, the private company was acquired by a public Canadian
company. Bullion received shares in the public company on a share for share
basis. During the year Bullion sold 58,048 shares of the public company for
$40,000. At April 30, 1996 the remaining 166,952 shares have been reflected
in the financial statements as investment in equity securities available for
sale and have been valued at their market value of $133,562. The unrealized
gain of $116,866 has been reflected as an equity adjustment in the balance
sheet.
5. MINING PROPERTIES
Mining Properties and claims have been reflected at historical cost
which, in management's opinion, is less than market value for each
property or claim. Bullion had previously traded some joint claims in
which they had a 90% interest for a 90% interest in five mineral lease
and surface use agreements (South Bullion property). Bullion and their
joint claim partner also retained a 3% net smelter royalty in the claims
that they traded. Bullion and their joint claim partner assumed the
minimum annual royalty payments due on the leases. During the year
ended April 30, 1996 the Company sold a 75% beneficial interest in the
South Bullion property and another property which was 100% owned by the
Company. The total consideration to be received for the two properties
was $1,450,000 of which 10% or 75% of the total consideration would be
paid to the Company's joint claim partner and the balance to the
Company. $250,000 was received at April 30, 1996 and the balance of
$1,200,000 was to be paid in cash or acceptable securities by April 30,
1997. The buyer agreed to expend $2,100,000 in an approved exploration
program on theproperties over a three year period. Additionally, the
buyer agreed to pay all the minimum annual royalty payments on the South
Bullion property and any other taxes and fees associated with both
properties. The Company would retain a 25% beneficial interest in both
properties.
Bullion remains contingently liable to pay the minimum annual royalty
payments on the South Bullion property if the sales agreement is
terminated. At April 30, 1996 Bullion was contingently liable on the
following lease commitments on the South Bullion property toretain their
mineral rights:
6. INCOME TAXES
The Company's effective tax rate differs from the expected federal
income tax rate asfollows:
1996 1995
---- ----
Income tax expense at statutory rate $ 419,604 36,421
Reduction in tax from application of NOL - (36,421)
Tax benefit created from remaining NOL - (194,000)
<PAGE>
BULLION MONARCH COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
Increase (decrease) in valuation allowance (68,000) 68,000
State income tax, net of federal benefit 40,722 147
Changes in tax rate of deferred tax liability 5,469 -
--------- ----------
Provision for income taxes (benefit) $ 397,795 (125,853)
--------- ----------
The components of the deferred tax assets and liabilities are as follows:
1996 1995
---- ----
Deferred tax assets:
Net operating loss Carry forward $ 255,697 296,180
Net operating loss Carry forward-State 689
--------- -------
Total deferred tax assets 256,386 296,180
Less valuation allowance - (68,000)
Total deferred tax assets, net of
valuation allowance 256,386 228,180
--------- -------
Deferred tax liabilities:
Deferred gain on partnership interest sale 102,180 102,180
Deferred gain on sale of mining properties 425,880 -
--------- -------
Total deferred tax liabilities 528,060 102,180
Net deferred tax asset (liability) $(271,675) 126,000
--------- -------
Bullion currently has a net operating loss Carry forward of
approximately $752,000 which is available to offset the deferred gains
mentioned in footnotes 1 and 5. The net operating loss expires in tax
years from April 30, 1997 through April 30, 2009.
7. RELATED PARTY TRANSACTIONS
As of April 30, 1996 and 1995, the Company was liable to certain
individuals who are shareholders and/or officers/directors for cash
advances made to or for the Company, unpaid salaries or director fees
and advances made to or for the Company, unpaid salaries or director
fees and unreimbursed travel expenses. The total due to these related
parties totaled $454,631 at April 30, 1995 and $41,451 at April 30,
1996. During the year ended April 30, 1996 the Company issued 4,162,200
shares of restricted common stock at .10 per share for a total of
$416,200 to retire certain obligations to these related parties.
No interest has been accrued on any of the payables except two 10%
interest bearing notes totaling $22,000 at April 30, 1995 to an
officer/director. Total accrued interest included in related party
payable is $4,463. These notes and accrued interest were paid off
during 1996
<PAGE>
BULLION MONARCH COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
by the issuance of restricted common shares as indicated in the
preceding paragraph.
At January 1, 1996 the Company interred into employment agreements with
four employee/shareholders. The agreements are for a period of six
years with automatically renewable three year terms. The compensation
ranges from $48,000 to $84,000 per year for each employee.
8. INCENTIVE STOCK OPTION AGREEMENT
On December 5, 1995, the Company adopted an incentive stock option plan
for employees, officers, consultants, and director. The plan is
intended to qualify under Section 422 of the Internal Revenue Code.
Under the terms of the plan, options to purchase common stock are
granted at not less than the estimated fair market value at the date of
the grant and are exercisable during specified future periods.
A summary of options granted is as follows:
Grant Date Shares Under Option Option Price Per Share
---------- ------------------- ----------------------
Dec. 5, 1995 750,000 $.55
Dec. 5, 1995 1,250,000 $.325
All options expire ten years from the date of the grant.
9. COMMITMENTS AND CONTINGENT LIABILITIES
As indicated in note 5, the Company is contingently liable for minimal
annual royalty payments on the South Bullion property if the company
that purchased the 75% beneficial interest in that property defaults on
its contract payments.
10. SUBSEQUENT EVENTS
Subsequent to quarter end a Nevada corporation acquired 727,272 common
shares of the Company's stock for $.55 per share in a private placement
offering. The total purchase price of $400,000 also included a warrant
to purchase an additional 727,272 shares at $.75 per share. The warrant
expires two years after the date it was acquired.
Subsequent to quarter end, the Board of Directors approved the
redemption of up to 250,000 shares of common stock from the Company's
president at $.70 per share.
<PAGE>
PART 1 - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OPERATING REVENUES AND EXPENSES
The Company at the present time derives revenues from lease and joint venture
rentals and advance royalty payments. The Company received $5,000 royalty
income during the quarter ended July 31, 1996. Other revenues for the quarter
resulted from the accrual of interest due in the amount of $7,835 on the note
receivable listed on the balance sheet.
Management is trying to hold expenses to a minimum and at the same time get
maximum work done on the Company's properties. Bullion has cut assessment work
requirements on its mining claims by leasing and joint venturing with other
mining companies, thus cutting overhead and fixed costs to their minimums.
The Company and a joint venture partner entered into a mining lease and option
to purchase agreement on certain unpatented mining claims situated in Elko
County, Nevada. They then sold a 50% working interest in the property. The
acquiring company earns their 50% working interest by issuing 200,000 treasury
common shares, by making $1,100,000 in option payments, and by expending
$2,000,000 on the property over three years.
Bullion Monarch has four full time employees. R. Don Morris, president, is a
graduate geologist. James A. Morris is Secretary/Treasure for the Company.
Peter Passaro is a member of the Board of Directors and part of the management
team. Phil Manning is responsible for investor relations. They have agreed to
accrue fee's based on the Company's ability to pay cash and/or receive
unregistered stock at a later date for their services.
LIQUIDITY AND CAPITAL RESOURCES
The past year Bullion adopted a policy of seeking third party mining companies
with greater financial ability and resources to lease or joint venture their
mining properties. Management wanted to accomplish three major objectives:
(1) reduce the need for capital resources and limit expenses, (2) create
operating revenues and working capital, (3) test the value of the properties.
Bullion is negotiating leases on several properties. These agreements, if
consummated, would add significantly to the liquidity and capital resources of
the Company. Success or failure of the continuing exploration on these
properties may have a significant effect on the Company's financial future.
<PAGE>
Bullion Monarch's royalty interest in the Bullion Mine, which is under lease to
Newmont Mining and American Barrick, appears to be substantial and could insure
the long term profitability of the Company.
In order for the Company to realize revenues from the exploration and
exploitation of metals and/or minerals, available ore reserves with mineral
concentrations large enough to justify the high cost of operation must be
identified. However, there are many risks which even a combination of
scientific knowledge and experience cannot overcome resulting in unproductive
efforts even where test results initially indicate commercially feasible ore.
Further, the market price of gold and silver is highly volatile. There can
be no assurance that the exploration of Bullion's properties will be
successful or that any future production will be profitable.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no legal proceedings currently pending.
ITEM 2. CHANGES IN SECURITIES
There have been no material withdrawals, or substitution of assets securing
any class of registered securities of the registrant since the date of the
last report.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
(a.) There have been no material defaults in the payment of principal,
interest, sinking fund or purchase fund installment, or any other default of
indebtedness by the Company.
(b) The Company has not declared a dividend in the past and does not have
earnings to declare a dividend in the future. The Company has no class of
securities requiring the payment of dividends and therefore, there is no
material arrearage in the payment of dividends since the date of the last
report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER MATERIALLY IMPORTANT EVENTS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
None.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-START> MAY-01-1996
<PERIOD-END> JUL-31-1996
<CASH> 50,030
<SECURITIES> 133,562
<RECEIVABLES> 1,723,464
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,773,494
<PP&E> 921,519
<DEPRECIATION> 824,268
<TOTAL-ASSETS> 2,409,252
<CURRENT-LIABILITIES> 383,583
<BONDS> 0
0
0
<COMMON> 3,398,105
<OTHER-SE> (1,483,795)
<TOTAL-LIABILITY-AND-EQUITY> 2,409,252
<SALES> 0
<TOTAL-REVENUES> 12,935
<CGS> 0
<TOTAL-COSTS> 206,500
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (193,565)
<INCOME-TAX> 0
<INCOME-CONTINUING> (193,565)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (193,565)
<EPS-PRIMARY> (.010)
<EPS-DILUTED> (.010)
</TABLE>
