<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 June 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: August 17, 1995
Common shares 23,551,012
<PAGE>
NORTH LILY MINING COMPANY
-------------------------
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1995
INDEX
-----
<TABLE>
<CAPTION>
<S> <C> <C>
Part I. Financial Information:
Item 1. - Condensed Consolidated Balance Sheets -
June 30, 1995 and December 31, 1994............................... 3
- Condensed Consolidated Statements of Cash Flow -
Six Months Ended June 30, 1995 and 1994........................... 4
- Condensed Consolidated Statements of Operations -
Six Months Ended June 30, 1995 and 1994
and Three Months Ended June 30, 1995 and 1994..................... 5
- Condensed Consolidated Statements of Shareholder's Equity -
June 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 June 30, December 31,
1995 1994
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 42,513 $ 38,954
Marketable securities 268,744 299,874
Accounts receivable 67,646 49,201
Inventory 93,276 101,750
------------ ------------
Total current assets 472,179 489,779
Plant and equipment, net 336,139 461,185
Mineral properties, net 3,560,988 4,048,059
Other assets 104,450 106,025
------------ ------------
Total assets $ 4,473,756 $ 5,105,048
============ ============
LIABILITIES
Current liabilities:
Accounts payable and accrued liabilities $ 570,620 $ 470,955
Reclamation liabilities 90,041 152,119
Due to former officers and directors - 156,250
Notes payable to Baja Gold, Inc. 206,790 201,337
------------ ------------
Total current liabilities 867,451 980,661
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 1,386,701 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 June 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 (47,865,516) (47,913,907)
Treasury stock, at cost, 144,830 shares as of
June 30, 1995 and December 31, 1994 (17,395) (17,395)
------------ ------------
Total shareholders' equity 3,087,055 2,956,164
------------ ------------
Total liabilities and shareholders' equity $ 4,473,756 $ 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 six months ended:
June 30, June 30,
1995 1994
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) 48,391 (409,304)
Adjustments to reconcile net loss to net
cash provided from (used in) operating activities:
Amortization and depreciation 27,437 28,885
Gain on disposition of mineral properties (309,970) -
Net realized gain on sale of marketable securities and investments (65,413) (38,205)
Decrease (increase) in accounts receivable (18,445) (27,842)
Decrease (increase) in inventory 8,474 (6)
Decrease in other assets 1,575 7,887
Increase (decrease) in accounts payable and accrued liabilities (56,585) 34,165
Decrease in reclamation liabilities (62,078) (63,289)
Increase in notes payable to Baja Gold, Inc. 5,453 -
Other items 8,750 -
--------- ---------
Net cash used in operating activities (412,411) (467,709)
--------- ---------
Cash flows from investing activities:
Acquisition and exploration of mineral properties,
net of option payments received 75,919 (217,528)
Proceeds from sale of marketable securities and investments 96,543 348,675
Proceeds from sale of mineral properties 37,500 -
Proceeds from sale of mining equipment 57,500 -
--------- ---------
Net cash provided by investing activities 267,462 131,147
--------- ---------
Cash flows from financing activities:
Advances from International Mahogany Corp. 148,508 436,386
--------- ---------
Net cash provided by financing activities 148,508 436,386
--------- ---------
Net increase in cash and cash equivalents 3,559 99,824
Cash and cash equivalents at beginning of period 38,954 40,070
--------- ---------
Cash and cash equivalents at end of period $ 42,513 $ 139,894
========= =========
</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 six months ended:
June 30, June 30, June 30, June 30,
1995 1994 1995 1994
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Operating expenses:
General and administrative expenses $ 170,613 $ 182,218 $ 402,852 $ 422,214
Exploration and property carrying costs 34,651 33,906 40,313 65,567
--------- --------- ---------- ----------
Operating loss (205,264) (216,124) (443,165) (487,781)
Other income:
Interest income 624 - 2,089 13,095
Net realized gain on sale of marketable securities 43,763 12,243 65,413 38,205
Other, net 112,483 41,620 114,084 27,177
Gain on disposition of mineral properties 309,970 - 309,970 -
--------- --------- ---------- ----------
Net income (loss) $ 261,576 $(162,261) $ 48,391 $(409,304)
========= ========= ========== ==========
Net income (loss) per common share $0.01 $(0.01) $0.00 $(0.02)
========= ========= ========== ==========
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 June 30, 1995
(unaudited)
<TABLE>
<CAPTION>
Common Stock Additional
---------------------- Paid-In Accumulated 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 income for period ended June 30, 1995 - - - 48,391 - 48,391
---------- ---------- ----------- ------------ -------- -----------
Balance, June 30, 1995 23,695,842 $2,369,584 $48,600,382 $(47,865,516) $(17,395) $ 3,087,055
========== ========== =========== ============ ======== ===========
</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 June 30, 1995 the Company had a working
capital deficiency of $395,272.
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 June 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 six and three month periods ended June
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 October 17, 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 June 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 June 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 June 30, 1995, the Company has recorded $120,000 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") for a face value of approximately $4,425,000 and was
originally scheduled to close on or before June 30, 1995. The closing date has
been changed to be within five business of the later of (a) receipt by Yuma of
all necessary regulatory approval; (b) the Water Right Approval Date; and (c)
completion by Yuma of a private placement for a minimum of net $1,500,000 to be
completed no later than 30 days after the Water Right Approval Date.
Pursuant to the terms of the agreements between Mahogany, Yuma and the Company,
subject to Canadian regulatory approvals, Yuma will acquire an additional 5%
from the Company in exchange for funding project costs and a bankable
feasibility study to be completed and delivered. In addition, the Company has
agreed to sell a further 10% Tuina interest to Yuma for $750,000; payable
$250,000 cash on the closing of the Mahogany/Yuma agreement; $166,000 cash or
Yuma common shares upon commencement of Tuina commercial production; $250,000
cash or common shares upon the first anniversary of the closing of Mahogany/Yuma
agreement; and $83,334 cash or common shares upon the first anniversary of
commencement of commercial production at Tuina. The election of payment by cash
or shares is at Yuma's discretion at a predetermined share valuation.
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. Yuma informed the Company that the bankable
feasibility study 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, is completed. 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
$148,508 to Mahogany and a reduction of the Tuina asset for the same amount.
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.
The Company has begun to seek joint venture partners to fund exploitation of
these properties. In addition the Company is reviewing other property
acquisitions in the area.
RESULTS OF OPERATIONS
The Company generated income of $261,576 and $48,391 for the three and six month
periods ended June 30, 1995, compared to losses of $162,261 and $409,304 for the
same periods in 1994. There was no revenue, no depreciation and amortization
charges and no costs of sales for the three and six month periods ending June
30, 1995. The Company does not anticipate any revenue over the next year from
current properties.
During the three and six month periods ended June 30, 1995, the Company incurred
$170,613 and $402,852 in general and administration expenses, compared to
$182,218 and $422,214 for the comparable periods in 1994. For the three and six
month periods ended June 30, 1995, the Company incurred exploration and property
carrying costs of $34,651 and $40,313, respectively, and for the same periods in
1994, incurred costs of $33,906 and $65,567. The reduced costs in 1995 are due
primarily to reduced activities and reduced interest in the Tuina project.
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 June 30, 1995 the Company had a working capital deficiency of $395,272, a
decrease of $95,610 from its working capital deficiency of $490,882 at December
31, 1994.
The Company reports a use of funds of $412,411 from operating activities for the
six month period ended June 30, 1995. This compares to a use of funds of
$467,709 for the comparable period in 1994.
During the six month period ended June 30, 1995, the Company was provided cash
of $267,462 from investment activities. The Company received net proceeds of
$96,543 from the sale of its marketable securities, $75,919 proceeds from option
payments received and $95,000 from the sale of mineral properties and mining
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 August 18, 1995
Chief Financial Officer and Chief
Accounting Officer
12
<PAGE>
TRADING SYMBOL: NASDAQ-NLMC
AUGUST 15, 1995
NORTH LILY MINING COMPANY ANNOUNCES
COMPLETION OF FEASIBILITY STUDY AT TUINA
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
infra-structure and a cost analysis of the additional required infra-structure.
The ore reserve study completed by Kilborn outlined an increased mineable
reserve in the San Jose and the San Martin Mines of 4.53 million metric tonnes
averaging 0.91% copper oxide and 1.16% total copper on only 2 of 30 known copper
prospects with an additional 600,000 metric tonnes 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. This production would
generate an estimated life of mine operating profit of $26 million 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.c.f. 10%, is $13.9 million.
The Study further referenced the potential to expand the reserves on the
property with a structured and methodical exploration program. 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. Upon Yuma closing its
purchase of a 74% interest in Tuina the Company will have to fund its remaining
26% interest of project costs. If the above projections made by Yuma are met
the Company will have cash flow within the next 12 to 15 months thus enabling
the Company to pursue other opportunities.
In addition the Company has finalized the acquisition of the Bolivia San Simon
gold properties and has begun to seek joint venture partners to fund
exploitation of these properties.
Separately, North Lily management is still diligently pursuing other
opportunities to acquire substantial projects that will significantly generate
growth for the Company.
For further information, please contact Steve Flechner or Gene Webb at (303)
294-0427.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 42,513
<SECURITIES> 268,744
<RECEIVABLES> 67,646
<ALLOWANCES> 0
<INVENTORY> 93,276
<CURRENT-ASSETS> 472,179
<PP&E> 6,836,128
<DEPRECIATION> 2,939,001
<TOTAL-ASSETS> 4,473,756
<CURRENT-LIABILITIES> 867,451
<BONDS> 519,250
<COMMON> 2,369,584
0
0
<OTHER-SE> 734,866
<TOTAL-LIABILITY-AND-EQUITY> 4,473,756
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 42,513
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 42,513
<INCOME-TAX> 0
<INCOME-CONTINUING> 42,513
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,513
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
