<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
----------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
EXCHANGE ACT
0-16740
---------
(Commission File Number)
NORTH LILY MINING COMPANY
---------------------------
(Exact name of registrant as specified in its charter)
UTAH 87-0159350
-------- --------------
(State of Incorporation) (IRS Employer Identification No.)
SUITE 210, 1800 GLENARM PLACE, DENVER, COLORADO 80202
- ------------------------------------------------ ---------
(Address of principal executive offices) (ZIP Code)
(303) 294-0427
------------------
(Registrant's telephone number, including area code)
N/A
-------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date: November _____, 1995
Common shares 23,551,012
<PAGE>
NORTH LILY MINING COMPANY
-------------------------
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1995
INDEX
-----
Part I. Financial Information:
<TABLE>
<CAPTION>
<S> <C> <C>
Item 1. - Condensed Consolidated Balance Sheets -
September 30, 1995 and December 31, 1994......................... 3
- Condensed Consolidated Statements of Cash Flow -
Nine Months Ended September 30, 1995 and 1994.................... 4
- Condensed Consolidated Statements of Operations -
Nine Months Ended September 30, 1995 and 1994
and Three Months Ended September 30, 1995 and 1994............... 5
- Condensed Consolidated Statements of Shareholder's Equity -
September 30, 1995 and December 31, 1994......................... 6
- Notes to Condensed Consolidated Financial Statements............. 7
Item 2. - Management's Discussion and Analysis of
Financial Condition and Results of Operations.................... 9
Part II. Other Information:
Item 6. - Exhibits and Reports on Form 8-K................................. 11
Signatures....................................................... 12
</TABLE>
2
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
ASSETS September 30, December 31,
1995 1994
-------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 74,897 $ 38,954
Marketable securities 244,195 299,874
Accounts receivable 59,884 49,201
Inventory 46,685 101,750
------------ ------------
Total current assets 425,661 489,779
Plant and equipment, net 318,286 461,185
Mineral properties, net 3,526,942 4,048,059
Other assets 104,450 106,025
------------ ------------
Total assets $ 4,375,339 $ 5,105,048
============ ============
LIABILITIES
Current liabilities:
Accounts payable and accrued liabilities $ 573,276 $ 470,955
Reclamation liabilities 57,437 152,119
Due to former officers and directors - 156,250
Loan by related party 74,532 -
Notes payable to Baja Gold, Inc. 211,538 201,337
------------ ------------
Total current liabilities 916,783 980,661
Due to International Mahogany Corp. - 648,973
Indebtedness to be settled with shares 354,250 354,250
Due to officers 165,000 165,000
------------ ------------
Total liabilities 1,436,033 2,148,884
------------ ------------
SHAREHOLDERS' EQUITY
Common stock, $0.10 par value; authorized 30,000,000 shares;
issued 23,695,842 and 23,420,842 shares as of September 30,
1995 and December 31, 1994, respectively 2,369,584 2,342,084
Additional paid-in capital 48,600,382 48,545,382
Accumulated deficit (48,013,265) (47,913,907)
Treasury stock, at cost, 144,830 shares as of
September 30, 1995 and December 31, 1994 (17,395) (17,395)
------------ ------------
Total shareholders' equity 2,939,306 2,956,164
------------ ------------
Total liabilities and shareholders' equity $ 4,375,339 $ 5,105,048
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the nine months ended:
September 30, September 30,
1995 1994
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (99,358) $(1,732,745)
Adjustments to reconcile net loss to net
cash provided from (used in) operating activities:
Amortization and depreciation 44,230 43,328
Gain on disposition of mineral properties (309,970) -
Net realized gain on sale of marketable securities and investments (77,861) (84,153)
Other items 8,750 317,585
Abandonment of mineral properties - 482,194
Write-down of mill equipment - 371,897
Other items affecting working capital (92,453) -
--------- -----------
Net cash used in operating activities (526,662) (601,894)
--------- -----------
Cash flows from investing activities:
Acquisition and exploration of mineral properties,
net of option payments received 139,775 (444,875)
Proceeds from sale of marketable securities and investments 133,540 501,912
Proceeds from sale of mining, mill and lab equipment 66,250 16,922
--------- -----------
Net cash provided by investing activities 339,565 73,959
--------- -----------
Cash flows from financing activities:
Advances from International Mahogany Corp. 148,508 602,798
Loan by related company 74,532 -
--------- -----------
Net cash provided by financing activities 223,040 602,798
--------- -----------
Net increase in cash and cash equivalents 35,943 74,863
Cash and cash equivalents at beginning of period 38,954 40,070
--------- -----------
Cash and cash equivalents at end of period $ 74,897 $ 114,933
========= ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the three months ended: For the nine months ended:
September 30, September 30, September 30, September 30,
1995 1994 1995 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Operating expenses:
General and administrative expenses $ 170,763 $ 427,488 $ 573,615 $ 849,702
Exploration and property carrying costs 16,704 69,415 57,017 134,962
--------- ----------- ----------- -----------
Operating loss (187,467) (496,903) (630,632) (984,664)
Other income:
Interest income (expense) 686 (12,944) 2,775 151
Net realized gain on sale of marketable securities 12,448 45,948 77,861 84,753
Other, net 26,584 (5,452) 140,668 21,105
Gain on disposition of mineral properties - - 309,970 -
Write-down of mineral properties - (482,193) - (482,193)
Write-down of mill equipment - (371,897) - (371,897)
--------- ----------- ----------- -----------
Net loss $(147,749) $(1,323,441) $(99,358) $(1,732,745)
========= =========== =========== ===========
Net loss per common share $(0.01) $(0.06) $(0.01) $(0.07)
=========== =========== =========== ==========
Weighted average common shares outstanding 23,276,012 23,272,460 23,276,012 23,272,460
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the periods ended December 31, 1994 and September 30, 1995
(unaudited)
<TABLE>
<CAPTION>
Common Stock Additional Accumu-
---------------------- Paid-In lated Treasury
Shares Amount Capital Deficit Stock Total
---------- ---------- ----------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 23,420,842 $2,342,084 $48,545,382 $(45,842,760) $(17,395) $ 5,027,311
Net loss for year ended December 31, 1994 - - - (2,071,147) - (2,071,147)
---------- ---------- ----------- ------------ -------- -----------
Balance, December 31, 1994 23,420,842 2,342,084 48,545,382 (47,913,907) (17,395) 2,956,164
Common stock issued on settlement of debt 275,000 27,500 55,000 - - 82,500
Net loss for period ended September 30, 1995 - - - (99,358) - (99,358)
---------- ---------- ----------- ------------ -------- -----------
Balance, September 30, 1995 23,695,842 $2,369,584 $48,600,382 $(48,013,265) $(17,395) $ 2,939,306
========== ========== =========== ============ ======== ===========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
6
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
GOING CONCERN
During 1994, 1993, and 1992 the Company incurred net losses of $2,071,147,
$6,271,619 and $5,210,307, respectively and at December 31, 1994 had a working
capital deficiency of $490,882. At September 30, 1995 the Company had a working
capital deficiency of $491,122.
During 1993 the Company ceased operations at its Silver City mine and suspended
mining operations at its Tuina mine. As a result the Company has no operating
cash flow to meet ongoing obligations. The Company has continually been selling
non-essential Company assets to fund ongoing operations and property commitments
over the past three years. The Company requires funds for its future operations
and will attempt to meet its ongoing liabilities as they fall due through the
sale of marketable securities or mineral properties. There can be no assurance
that the Company will be able to raise funds or be successful in resolving its
contingent liabilities, in which case the Company may be unable to meet its
obligations. Should the Company be unable to realize on its assets and
discharge its liabilities in the normal course of business, the net realizable
value of its assets may be materially less than the amounts recorded on the
balance sheet.
DISCLOSURES
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions for Rule 10-01 of Regulation S-
X. Accordingly, they do not include all the information and footnotes required
by generally accepted accounting principles for complete financial statements.
The unaudited financial statements reflect all adjustments which are, in the
opinion of management, necessary to a fair statement of results for interim
periods presented. All adjustments made in the preparation of interim period
results, for the period ended September 30, 1995, with the exception of the sale
by the Company of a 9% interest in its Tuina project, are of a normal recurring
nature. The operating results for the nine and three month periods ended
September 30, 1995 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1995. For further information, refer
to the consolidated financial statements for the year ended December 31, 1994.
LEGAL PROCEEDING
In August 1994, George Holcomb filed a complaint against the Company in the
Superior Court for the County of Maricopa, Arizona. Mr. Holcomb seeks vacation
pay which was not paid to him when his employment with the Company terminated,
together with interest thereon, treble damages, costs, and attorney fees.
During November, 1994, the Company paid $20,834 to Mr. Holcomb, representing the
Company's calculation of vacation pay owed. However, the Company disputes Mr.
Holcomb's computation, which is based on a higher rate of pay. The Company also
disputes any award for treble damages. Mr. Holcomb's motion for summary
judgment regarding the applicability of the statute which would award treble
damages was denied on April 3, 1995. A trial date of December 13, 1995 has been
scheduled.
7
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
COMMITMENTS
The Company negotiated with certain of its creditors to settle its indebtedness
through the issuance of common stock of the Company at a later date, at an
ascribed price of $0.30 per share. At September 30, 1995 the amount totalled
$354,250.
During 1994 the Company recorded $165,000 as due to officers relating to unpaid
salaries. The officers agreed not to demand repayment of this amount until
January 2, 1996, at which time the indebtedness may be either settled with cash,
if available, or the issuance of shares of the Company, at an ascribed price of
$0.30 per share. The amount remained outstanding at September 30, 1995. In
addition, effective January 1, 1995, the officers have agreed to reduce their
salary compensation by 10% ("1995 Compensation") and further agreed to only
receive a 75% portion of the 1995 Compensation in cash and the remaining 25%
portion as deferred compensation. The cash position will only be paid upon the
Company completing a financing and the deferred compensation will only be paid
in the event that the Company generates operating cash flow or completes a major
financing. The deferred compensation may be either settled with cash or the
issuance of common stock, at a predetermined price per share, at the officer's
election. As at September 30, 1995, the Company has recorded $165,000 of the
1995 Compensation as accounts payable.
8
<PAGE>
NORTH LILY MINING COMPANY
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
- -------------
RESTRUCTURING OF TUINA OWNERSHIP
Effective April 12, 1995 the Company and International Mahogany Corp.
("Mahogany") agreed to a restructuring of the ownership interest of the Tuina
project. In settlement of the Company's outstanding debt to Mahogany as at
March 28, 1995, the Company has reduced its ownership interest in Compania
Minera Phoenix S.A. ("Phoenix") from 50% to 41%.
On April 19, 1995 Mahogany agreed to sell its 59% Phoenix interest to Yuma Gold
Mines Limited ("Yuma"). The sale to Yuma was extended on several occasions and
the terms were subsequently revised. Pursuant to the revised agreement, Yuma
will acquire Mahogany's 59% interest for an initial payment of $855,000 and the
assumption of certain indebtedness, less deductions for operating costs and the
costs of securing the water rights for the Tuina Project. In addition, Yuma is
required to make two further payments to Mahogany due upon commencement of Tuina
commercial production and one year thereafter. These payments are to be
calculated in relation to the initial capital costs of the Project, from a high
of $3,591,000 where the initial capital costs are less than $14,000,000 with
graduating payments decreasing as capital costs increase.
Pursuant to the terms of the modified agreements between Mahogany, Yuma and the
Company, subject to Canadian regulatory approvals, Yuma will, at closing, still
acquire an additional 5% from the Company in exchange for funded project costs
and delivered bankable feasibility study. In addition, the Company has agreed
to sell a further 10% Tuina interest to Yuma for an initial payment of $145,000,
the assumption of $200,000 of indebtedness (less deductions for operating costs
and the costs of securing the water rights for the Tuina Project) and subsequent
payments, up to a maximum of $609,000, on the same basis as the Mahogany revised
agreement.
Closing of the modified agreements is subject to Yuma completing a private
placement of a minimum of $1,500,000 and securing of the water rights by
November 15, 1995.
This restructuring allows the Company to retain a substantial interest in the
Tuina project while eliminating the most significant debt of the Company as well
as providing an infusion of cash. The bankable feasibility study delivered to
the Company by Yuma was prepared by Union Minere (the "Union Minere Study"),
with additional information having been prepared by Krebs, Kilborn Engineering
and the operating company for the Tuina project. The Union Minere Study
outlined an increased mineable reserve of 4.53 million metric tonnes averaging
0.91% copper oxide and l.16% total copper in the San Jose and the San Martin
pits with an additional 600,000 metric tonnes of similar grade on the Santa Rosa
pit. The Union Minere Study concludes that the Tuina project has the ability to
produce 83.6 million pounds of copper over a seven year period which would
generate an estimated life of mine operating profit of $26 million based on
copper prices at $1.20. Subject to the closing of the purchase and the
associated financing, Yuma projects that the mine and SX-EW plant construction
will commence within four weeks with copper cathode production expected 12 to 15
months later. Barring any unforseen complications this will allow the Company to
seek project and equity financing.
The effect on the Company's balance sheet from the disposition of a 9% interest
in Phoenix has resulted in the elimination of the Company's indebtedness of
$766,290 to Mahogany and a reduction of the Tuina asset by $456,320, resulting
in a gain on disposition of $309,970. The completion of project and equity
financing and the start of production on the Tuina project will result in
operating cash flow and enhance the Company's assets. While the Company expects
that its agreement with Yuma will close, there is no guarantee that it will. If
the agreement with Yuma does not close the Company will retain a 41% interest in
the Tuina project and the Company will be required to obtain alternate financing
to fund its carrying costs of the Tuina property and its general overhead costs.
9
<PAGE>
BOLIVIA - SAN SIMON GOLD PROJECT
The Company (in conjunction with others) finalized the acquisition of properties
in the San Simon gold project located in northeastern Bolivia totalling 5,300
hectares. The property is adjacent to an area where local garimperos are
removing approximately 2 kilograms of gold per day using crude mining methods.
Several companies are expressing interest in funding a joint venture on this
project. In addition the Company is reviewing other property acquisitions in
the area.
RESULTS OF OPERATIONS
The Company incurred losses of $147,749 and $99,358 for the three and nine month
periods ended September 30, 1995, compared to losses of $1,323,441 and
$1,732,745 for the same periods in 1994. There was no revenue, no depreciation
and amortization charges and no costs of sales for the three and nine month
periods ending September 30, 1995. The Company does not anticipate any revenue
over the next year from current properties.
During the three and nine month periods ended September 30, 1995, the Company
incurred $170,763 and $573,615 in general and administration expenses, compared
to $427,488 and $849,702 for the comparable periods in 1994. For the three and
nine month periods ended September 30, 1995, the Company incurred exploration
and property carrying costs of $16,704 and $57,017, respectively, and for the
same periods in 1994, incurred costs of $69,415 and $134,962. The reduced costs
in 1995 are due primarily to reduced activities and the Company's reduced
interest in the Tuina project. Project costs incurred by the Tuina project
since April 1995 have been funded by Yuma.
The Company did not generate sufficient funds to meet its proportionate share of
costs and obligations on the Tuina project with Mahogany during a portion of
1994. Effective April 12, 1995 the Company and Mahogany restructured the
ownership interest of the Tuina project. The Company exchanged a 9% interest in
Phoenix for the outstanding debt to Mahogany. The transaction resulted in the
Company recognizing a gain of $309,970. See Restructuring of Tuina Ownership.
At September 30, 1995 the Company had a working capital deficiency of $491,122,
a minor increase of $240 from its working capital deficiency of $490,882 at
December 31, 1994.
The Company reports a use of funds of $526,662 from operating activities for the
nine month period ended September 30, 1995. This compares to a use of funds of
$601,894 for the comparable period in 1994.
During the nine month period ended September 30, 1995, the Company was provided
cash of $339,565 from investment activities. The Company received net proceeds
of $133,540 from the sale of its marketable securities, $139,775 net proceeds
from option payments received and $66,250 from the sale of mining, mill and lab
equipment.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
See discussion contained in notes to condensed consolidated financial
statements under "Legal Proceedings" (Part I. Item 1).
ITEM 5. OTHER INFORMATION
-----------------
The registrant incorporates by reference the information contained in
the news release, a copy of which is filed as an exhibit to this
report.
10
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) The following exhibits are filed with this report.
Regulation
S-K Number Exhibit
---------- -------
20.1 News Release
27.1 Financial Data Schedule
(b) Reports on Form 8-K: none
11
<PAGE>
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
undersigned thereunto duly authorized.
NORTH LILY MINING COMPANY
By: /s/ Nick DeMare
------------------------------------------
Nick DeMare November 10, 1995
Chief Financial Officer and
Chief Accounting Officer
12
<PAGE>
TRADING SYMBOL: NASDAQ-NLMC
AUGUST 15, 1995
NORTH LILY ANNOUNCES COMPLETION OF FEASIBILITY
STUDY FOR ITS TUINA, CHILE COPPER PROJECT
North Lily Mining Company was informed by Yuma Gold Mines, Ltd. that the
independent feasibility study prepared by Union Miniere, with additional
information having been prepared by Krebs, Kilborn Engineering and the operating
company for the Tuina project is completed.
The Study encompasses an ore reserve study, metallurgical study, analysis of the
infrastructure and a cost analysis of the additional required infrastructure.
The ore reserve study completed by Kilborn outlines an increased minable reserve
in the San Jose and the San Martin Mines of 4.53 million metric tons averaging
0.91% copper oxide and 1.16% total copper on only 2 of 30 known copper prospects
with an additional 600,000 metric tons of similar grade material on the Santa
Rosa Mine.
The Study concludes that the Tuina project has the ability to produce 83.6
million pounds of copper over a period of 7 years from the above known reserves.
This production will generate a mine operating profit of $26,160,000 based on
copper prices at $1.20 per pound. The projected pre-tax internal rate of return
is 63.7% and the associated net present value, d.f.c. 10%, is $13,906,000.
The Study further referenced the potential to expand the reserves on the
property with a structured and methodical exploration program. Yuma has
indicated that they have initiated such an exploration program with their
geologists expected on site this week.
Subject to the closing of the purchase and the associated financing, Yuma
projects that the mine and SX-EW plant construction will commence within 4
weeks, with copper cathode production expected 12 to 15 months later.
If the above projections made by Yuma are met, the Company will have operating
revenue within the next 12 to 15 months thus enabling the Company to pursue
other opportunities.
In addition the Company has finalized acquisition of the Bolivia gold properties
and is participating in a broad soil sampling program on the project with
results due in September. The Company will now begin to seek joint venture
partners to fund further exploitation of these properties.
Separately, North Lily Management is still diligently pursuing other
opportunities to acquire substantial projects that will significantly grow the
Company
For further information, please contact Steve Flechner or Gene Webb.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-01-1995
<CASH> 74,897
<SECURITIES> 244,195
<RECEIVABLES> 59,884
<ALLOWANCES> 0
<INVENTORY> 46,685
<CURRENT-ASSETS> 425,661
<PP&E> 6,901,394
<DEPRECIATION> 2,951,716
<TOTAL-ASSETS> 4,375,339
<CURRENT-LIABILITIES> 916,783
<BONDS> 519,250
<COMMON> 2,369,584
0
0
<OTHER-SE> 587,117
<TOTAL-LIABILITY-AND-EQUITY> 4,375,339
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 99,358
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (99,358)
<INCOME-TAX> 0
<INCOME-CONTINUING> (99,358)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (99,358)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
