<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 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 0-4846-3
--------------------------------------------
CONSIL CORP.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Idaho 82-0288840
- ---------------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Suite 500, 625 Howe Street
Vancouver, British Columbia, Canada V6C 2T6
- ---------------------------------------- --------------------
(Address of principal executive offices) (Zip Code)
604-331-0844
- -----------------------------------------------------------------
(Registrant's telephone number, including area code)
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, and
(2) has been subject to such filing requirements for at least the
past 90 days. Yes XX . No .
---- ----
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Class Outstanding October 31, 1996
- --------------------------------------- ----------------------------
Common stock, par value $0.10 per share 9,449,757 shares
<PAGE> 2
CONSIL CORP.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
I N D E X
PAGE
PART I. - Financial Information
Item l - Consolidated Balance Sheets - September 30,
1996 and December 31, 1995 3
- Consolidated Statements of Operations and
Accumulated Deficit - Three Months and Nine
Months Ended September 30, 1996 and 1995 4
- Consolidated Statements of Cash Flows - Nine
Months Ended September 30, 1996 and 1995 5
- Notes to Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. - Other Information
Item 1 - Legal Proceedings 12
Item 6 - Exhibits and Reports on Form 8-K 12
-2-
<PAGE> 3
PART I - FINANCIAL INFORMATION
CONSIL CORP.
Consolidated Balance Sheets (Unaudited)
(U.S. Dollars)
----------
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 241,845 $ 588,787
Accounts receivable 5,464 1,410
Income tax refund receivable 125,197 46,344
Deferred incomes taxes 33,000 33,000
Other current assets 32,922 7,957
------------ ------------
Total current assets 438,428 677,498
------------ ------------
Property, plant and equipment:
Plant, equipment and facilities 29,094 5,434
Less - Accumulated depreciation (4,276) (494)
------------ ------------
24,818 4,940
Deferred income taxes 52,619 66,000
------------ ------------
Total assets $ 515,865 $ 748,438
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable - Hecla Mining Company $ 187,114 $ 279,598
Accounts payable and accrued expenses 14,085 3,069
Note payable - Hecla Mining Company 500,000 - -
------------ ------------
Total current liabilities 701,199 282,667
------------ ------------
Stockholders equity (deficit):
Preferred stock; 1996 and 1995 - $0.25 par value,
authorized, 10,000,000 shares; issued and
outstanding, none - - - -
Common stock; $0.10 par value; authorized,
20,000,000 shares; issued 9,455,689 shares 945,569 945,569
Discount on common stock (190,709) (190,709)
Capital surplus 1,356,815 1,356,815
Accumulated deficit (2,293,548) (1,645,880)
Less: Common stock reacquired at cost; 1996 -
5,932 shares; 1995 - 6 shares (3,461) (24)
------------ ------------
Total shareholders' equity (deficit) (185,334) 465,771
------------ ------------
Total liabilities and shareholders' equity (deficit) $ 515,865 $ 748,438
============ ============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
-3-
<PAGE> 4
PART I - FINANCIAL INFORMATION (Continued)
CONSIL CORP.
Consolidated Statements of Operations and Accumulated Deficit (Unaudited)
(U.S. Dollars)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------ -----------------------------
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue:
Rental income $ - - $ 1,500 $ - - $ 4,500
Transfer fees - - 256 152 604
Interest 186 9,459 3,418 29,235
Miscellaneous - - 20,000 - - 20,460
------------ ------------ ------------ ------------
186 31,215 3,570 54,799
------------ ------------ ------------ ------------
Expenses:
General and administrative
expenses 102,886 66,576 266,272 122,833
Acquisition related costs 42,344 - - 42,344 - -
Interest expense 5,442 - - 5,442 - -
Exploration 250,304 2,720 434,508 2,720
Depreciation 1,528 222 3,782 222
------------ ------------ ------------ ------------
402,504 69,518 752,348 125,775
------------ ------------ ------------ ------------
Net loss before
income tax benefit (402,318) (38,303) (748,778) (70,976)
Income tax benefit 25,625 - - 101,110 2,605
------------ ------------ ------------ ------------
Net loss (376,693) (38,303) (647,668) (68,371)
Deficit at beginning of
period (1,916,855) (1,161,217) (1,645,880) (1,131,149)
------------ ------------ ------------ ------------
Deficit at end of period $ (2,293,548) $ (1,199,520) $ (2,293,548) $ (1,199,520)
============ ============ ============ ============
Net loss per share of common
stock $ (0.04) $ - - $ (0.07) $ (0.01)
============ ============ ============ ============
Cash dividends per share $ - - $ - - $ - - $ - -
============ ============ ============ ============
Weighted average number of
common shares outstanding 9,449,757 8,414,016 9,450,970 8,233,461
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
-4-
<PAGE> 5
PART I - FINANCIAL INFORMATION (Continued)
CONSIL CORP.
Consolidated Statements of Cash Flows (Unaudited)
(U.S. Dollars)
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------------
September 30, September 30,
1996 1995
------------- -------------
<S> <C> <C>
Operating activities:
Net loss $ (647,668) $ (68,371)
Noncash elements included in net loss:
Depreciation 3,782 222
Deferred income tax provision 13,381 - -
Change in:
Accounts receivable (4,054) (981)
Income tax refund receivable (78,853) (2,635)
Other current assets (24,965) (2,054)
Accounts payable and accrued expenses (81,468) 42,401
------------- -------------
Net cash used by operating activities (819,845) (31,418)
------------- -------------
Investing activities:
Additions to property, plant and equipment (23,660) (5,434)
------------- -------------
Net cash used by investing activities (23,660) (5,434)
------------- -------------
Financing activities:
Proceeds from note payable 500,000 - -
Acquisition of treasury stock (3,437) - -
------------- -------------
Net cash provided by financing activities 496,563 - -
------------- -------------
Net decrease in cash and cash equivalents (346,942) (36,852)
Cash and cash equivalents at beginning of period 588,787 753,486
------------- -------------
Cash and cash equivalents at end of period $ 241,845 $ 716,634
============= =============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
-5-
<PAGE> 6
PART I - FINANCIAL INFORMATION (Continued)
CONSIL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The notes to the consolidated financial statements as of December 31,
1995, as set forth in ConSil Corp.'s (the Company or ConSil) 1995
Annual Report on Form 10-K, substantially apply to these interim
consolidated financial statements and are not repeated here. All
amounts are in U.S. dollars unless otherwise indicated.
Note 2. The financial information given in the accompanying unaudited interim
financial statements reflects all adjustments which are, in the
opinion of management, necessary to a fair statement of the results
for the interim periods reported. All such adjustments are of a
normal recurring nature. All financial statements presented herein
are unaudited. However, the balance sheet as of December 31, 1995,
was derived from the audited consolidated balance sheet described in
Note 1 above.
Note 3. The components of the income tax benefit for the nine months ended
September 30, 1996 and 1995 are as follows (in thousands):
1996 1995
-------- --------
Current:
State income tax benefit $ 28,970 $ - -
Federal income tax benefit 85,521 2,605
-------- --------
Total current benefit 114,491 2,605
Deferred provision (13,381) - -
-------- --------
Total $101,110 $ 2,605
======== ========
Note 4. At September 30, 1996, the Company had 9,449,757 common shares
outstanding of which Hecla Mining Company (Hecla, the majority
shareholder of the Company) owned 7,418,300 shares or 78.5% of the
outstanding shares. Pursuant to an agreement between the Company's
wholly owned Mexican subsidiary, Minera ConSil, S.A de C.V. (Minera
ConSil) and Hecla Mining Company's wholly owned Mexican subsidiary,
Minera Hecla, S.A. de C.V. (Minera Hecla), the Company recorded
exploration expense totaling approximately $351,000 in the first nine
months of 1996 in connection with services performed by Minera Hecla
under the direction of the management of Minera ConSil at the Ojo
Caliente and Sombrerete projects. In addition, the Company incurred
exploration expenses charged by
-6-
<PAGE> 7
PART I - FINANCIAL INFORMATION (Continued)
CONSIL CORP.
Hecla Mining Company of approximately $24,179 for the first nine
months of 1996 at the Sombrerete project.
On June 28, 1996, ConSil and Hecla entered into a loan agreement
whereby Hecla agreed to make available to ConSil a loan not to exceed
$500,000. Under the terms of the loan agreement, ConSil agreed to pay
interest on the outstanding balance at the prime interest rate
specified in the Wall Street Journal, plus one and one-half percent
per year until paid. The loan is payable upon demand by Hecla, and is
due in its entirety on or before December 31, 1996. In order to
secure the loan, ConSil has caused its wholly owned subsidiary Minera
ConSil, S.A. de C.V. to grant Hecla's wholly owned subsidiary, Minera
Hecla, S.A. de C.V. its rights under that certain Letter Agreement
dated February 9, 1996, by and between ConSil Corp. and Grupo Catorce,
S.A. de C.V., also known as the Sombrerete Agreement. The loan
agreement also places certain restrictions on the Company, including
restrictions on assets, indebtedness, increases in compensation, loans
or advances to shareholders, directors or employees, capital stock,
and hiring of new employees. These restrictions can be altered with
the prior consent of Hecla. At September 30, 1996, there was $500,000
outstanding under the loan agreement with Hecla.
In addition to the above transactions, the Company incurred general
and administrative expenses charged by Hecla of approximately $19,836
and $52,231 for the first nine months of 1996 and 1995, respectively.
Note 5. The Company prepares its consolidated financial statements in
accordance with generally accepted accounting principles ("GAAP") in
the United States. The differences between U.S. GAAP and Canadian
GAAP and effects on shareholders' deficit and the net loss at
September 30, 1996 are as follows:
Total stockholders' deficit at September 30, 1996
per U.S. generally accepted accounting principles $ (185,334)
Adjustments to conform with Canadian generally
accepted accounting principles:
Deferred income tax assets (85,619)
----------
Total stockholders' deficit at September 30, 1996
per Canadian generally accepted accounting
principles $ (270,953)
==========
-7-
<PAGE> 8
PART I - FINANCIAL INFORMATION (Continued)
CONSIL CORP.
Net loss for the nine months ended September 30, 1996
per U.S. generally accepted accounting
principles $ (647,668)
Adjustments to conform with Canadian generally
accepted accounting principles
Deferred income tax provision 13,381
----------
Net loss for the nine months ended September 30, 1996
per Canadian generally accepted accounting
principles $ (634,287)
==========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
Except for the historical information contained herein, the matters
discussed that are forward-looking statements involve risks and
uncertainties, including the timely development of future projects
(such as the Ojo Caliente and Sombrerete projects), the impact of
metals prices, changing market conditions and regulatory environment,
and other risks detailed from time to time in the Company's Form 10-K
and Form 10-Qs filed with the United States Securities and Exchange
Commission. Actual results may differ materially from those projected
or implied. Forward-looking statements included herein represent the
Company's judgment as of the date of this filing. The Company
disclaims, however, any intent or obligation to update these forward-
looking statements.
RESULTS OF OPERATIONS
FIRST NINE MONTHS 1996 COMPARED TO FIRST NINE MONTHS 1995
The Company reported a net loss of $647,668 or $0.07 per share, in the
first nine months of 1996 compared to a net loss of $68,371 in the
same period in 1995. The increase in net loss is primarily due to (1)
an increase in expenses of $626,573, consisting of increased
exploration expenditures totaling $431,788, most notably for the Ojo
Caliente and Sombrerete exploration projects, acquisition and due
diligence cost of $42,344 incurred in connection with Minas La
Colorada, S.A. de C.V., and increased general and administrative
expenses of $143,439 due to management salaries and costs associated
with the Vancouver office in the 1996 period and (2) decreased
-8-
<PAGE> 9
PART I - FINANCIAL INFORMATION (Continued)
CONSIL CORP.
revenue of $51,299. These were partly offset by a $98,505 increase in
the income tax benefit.
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE
MONTHS ENDED SEPTEMBER 30, 1995
The Company reported a net loss of $376,693, or $0.04 per share in the
third quarter of 1996 compared to a net loss of $38,303 for the same
period in 1995. The increase in net loss is primarily due to (1) an
increase in expenses of $332,986, consisting of increased exploration
expenditures totaling $247,584, most notably for the Ojo Caliente and
Sombrerete exploration projects, acquisition and due diligence costs
of $42,344 incurred in connection with Minas La Colorada, S.A. de
C.V., and increased general and administrative expenses of $36,310 due
to management salaries and costs associated with the Vancouver office
in the 1996 period and (2) decreased revenue of $31,029. These were
partly offset by a $25,625 increase in the income tax benefit.
FINANCIAL CONDITION AND LIQUIDITY
At September 30, 1996, assets totaled $515,865 and shareholders'
deficit totaled $185,334. Cash and cash equivalents decreased by
$346,942 to $241,845 at September 30, 1996 from $588,787 at the end of
1995. Operating activities used $819,845 of cash during the first
nine months of 1996. The primary uses of cash for operating
activities were for exploration expenditures on the Ojo Caliente and
Sombrerete exploration projects, and general and administrative
expenses.
The Company's financing activities provided $496,563 of cash during
the first nine months of 1996. Cash was provided by borrowings under
the note from Hecla of $500,000 partially offset by acquisition of
treasury stock totaling $3,437.
The Company's investing activities used $23,660 of cash during the
first nine months of 1996 for acquisition of office equipment.
Working capital decreased $657,602 during the first nine months of
1996, from $394,831 at December 31, 1995 to a
-9-
<PAGE> 10
PART I - FINANCIAL INFORMATION (Continued)
CONSIL CORP.
negative $262,771 at September 30, 1996. The decrease in working
capital is primarily the result of funding operating losses associated
with the exploration of the Company's properties.
On June 28, 1996, ConSil and Hecla entered into a loan agreement
whereby Hecla agreed to make available to ConSil a loan not to exceed
$500,000. Under the terms of the loan agreement, ConSil agreed to pay
interest on the outstanding balance at the prime interest rate
specified in the Wall Street Journal, plus one and one-half percent
per year until paid. The loan is payable upon demand by Hecla, and is
due in its entirety on or before December 31, 1996. In order to
secure the loan, ConSil has caused its wholly owned subsidiary Minera
ConSil, S.A. de C.V. to grant Hecla's wholly owned subsidiary, Minera
Hecla, S.A. de C.V. it's rights under that certain Letter Agreement
dated February 9, 1996, by and between ConSil Corp. and Grupo Catorce,
S.A. de C.V., also known as the Sombrerete Agreement. The loan
agreement also places certain restrictions on the Company, including
restrictions on assets, indebtedness, increases in compensation, loans
or advances to shareholders, directors or employees, capital stock,
and hiring of new employees. These restrictions can be altered with
the prior consent of Hecla. At September 30, 1996, there was $500,000
outstanding under the loan agreement with Hecla.
On July 22, 1996, the Company announced that it entered into a Letter
of Intent with Minas La Colorada, S.A.de C.V. (MLC) for the
acquisition of a 100% interest in MLC's silver mining operations,
including its operating silver mine in the Chalchihuites mining
district, state of Zacatecas, Mexico and a number of other exploration
concessions. Consideration for the proposed acquisition is 9,000,000
shares of ConSil common stock and the assumption of $2,500,000 in debt
by ConSil. The acquisition is subject to due diligence, ConSil
shareholder approval, approval by stock exchange and regulatory
authorities and execution of a definitive agreement. The acquisition
is also subject to the Company completing an equity financing
sufficient to complete the acquisition, expand production at MLC's
silver mine, and explore the exploration projects obtained in the
proposed acquisition. During the third quarter of 1996, the Company
completed its due diligence, including a study by independent
consultants, which
-10-
<PAGE> 11
PART I - FINANCIAL INFORMATION (Continued)
CONSIL CORP.
confirmed a sufficient reserve base at the mine to justify the
Company's proposed capital investment. The parties are now
negotiating the final terms for the definitive agreement. Due to a
number of uncertainties associated with the proposed acquisition, no
assurance can be made that the acquisition will be completed.
At the Sombrerete property, the Company completed an eight hole, 1,820
meter diamond drill program during the third quarter of 1996. The
drilling examined the main Pabellon and San Guillermo vein structures
adjacent to old workings. The objective of the program was to
discover additional ore which could be readily developed and mined.
Although every hole intersected the vein structures, ore grades were
not encountered. Based on the results of drilling, it appears the
exploration targets at the Sombrerete property are at an earlier, less
defined stage than previously anticipated.
The Company intends to finance planned expenditures partially through
existing cash and cash equivalents. Existing cash and cash
equivalents are not sufficient to fully fund planned expenditures.
Management is also currently investigating raising additional capital
via a common or preferred stock offering. Management anticipates an
equity offering late in 1996, although there can be no assurance that
the timing of an equity offering, or the ability to complete such an
equity offering will be achieved. Further exploration work on the Ojo
Caliente and Sombrerete projects is contingent upon the Company's
ability to obtain the appropriate financing.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS No. 123). SFAS No. 123 establishes
financial accounting and reporting standards for stock-based employee
compensation plans. SFAS No. 123 encourages all entities to adopt a
fair value based method of accounting, but allows an entity to
continue to measure compensation cost for those plans using the
intrinsic value method of accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees." The Company will comply
with the provisions of SFAS No. 123 on January 1, 1996, by presenting
the pro-forma disclosure requirements of SFAS No. 123 in its 1996
annual financial statements.
-11-
<PAGE> 12
PART II - OTHER INFORMATION
CONSIL CORP.
ITEM 1. LEGAL PROCEEDINGS
There are no pending legal proceedings.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 - Financial Data Schedule
(b) Reports on Form 8-K
Report on Form 8-K dated July 22, 1996, related to the Letter of
Intent signed with Minas La Colorada, S.A. de C.V. for
acquisition of Mexican silver mine.
Items 2, 3, 4 and 5 of Part II are omitted from this report as inapplicable.
-12-
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the under-
signed thereunto duly authorized.
CONSIL CORP.
(Registrant)
Date: November 14, 1996 By /s/ Gerald G. Carlson
---------------------------------
Gerald G. Carlson, President
Date: November 14, 1996 By /s/ Stanley E. Hilbert
---------------------------------
Stanley E. Hilbert, Principal
Accounting Officer
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 241,845
<SECURITIES> 0
<RECEIVABLES> 130,661
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 438,428
<PP&E> 29,094
<DEPRECIATION> (4,276)
<TOTAL-ASSETS> 515,865
<CURRENT-LIABILITIES> 701,199
<BONDS> 0
0
0
<COMMON> 945,569
<OTHER-SE> (1,130,903)
<TOTAL-LIABILITY-AND-EQUITY> 515,865
<SALES> 0
<TOTAL-REVENUES> 3,570
<CGS> 0
<TOTAL-COSTS> 752,348
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (748,778)
<INCOME-TAX> 101,110
<INCOME-CONTINUING> (647,668)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (647,668)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> 0
</TABLE>
