<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 March 31, 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: March 24, 1995
Common shares 23,276,012
<PAGE>
NORTH LILY MINING COMPANY
-------------------------
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1995
<TABLE>
<CAPTION>
INDEX
-----
<S> <C> <C>
Part I. Financial Information:
Item 1. - Condensed Consolidated Balance Sheets -
March 31, 1995 and December 31, 1994........................................ 3
- Condensed Consolidated Statements of Cash Flow -
Three Months Ended March 31, 1995 and 1994.................................. 4
- Condensed Consolidated Statements of Operations -
Three Months Ended March 31, 1995 and 1994.................................. 5
- Condensed Consolidated Statements of Shareholder's Equity -
March 31, 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............................................ 10
Signature................................................................... 11
</TABLE>
2
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
ASSETS March 31, December 31,
1995 1994
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 135,139 $ 38,954
Marketable securities 255,210 299,874
Accounts receivable 57,996 49,201
Inventory 101,750 101,750
------------ ------------
Total current assets 550,095 489,779
Plant and equipment, net 393,041 461,185
Mineral properties, net 3,976,207 4,048,059
Other assets 106,025 106,025
------------ ------------
Total assets $ 5,025,368 $ 5,105,048
============ ============
LIABILITIES
Current liabilities:
Accounts payable and accrued liabilities $ 525,226 $ 470,955
Reclamation liabilities 112,529 152,119
Due to former officers and directors 156,250 156,250
Notes payable to Baja Gold, Inc. 202,844 201,337
------------ ------------
Total current liabilities 996,849 980,661
Due to International Mahogany Corp. 766,290 648,973
Indebtedness to be settled with shares 354,250 354,250
Due to officers 165,000 165,000
------------ ------------
Total liabilities 2,282,389 2,148,884
------------ ------------
SHAREHOLDERS' EQUITY
Common stock, $0.10 par value; authorized
30,000,000 shares; issued 23,420,842
shares as of March 31, 1995 and
December 31, 1994 2,342,084 2,342,084
Additional paid-in capital 48,545,382 48,545,382
Accumulated deficit (48,127,092) (47,913,907)
Treasury stock, at cost, 144,830 shares as of
March 31, 1995 and December 31, 1994 (17,395) (17,395)
------------ ------------
Total shareholders' equity 2,742,979 2,956,164
------------ ------------
Total liabilities and shareholders' equity $ 5,025,368 $ 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 three months ended:
March 31, March 31,
1995 1994
---------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(213,185) $(247,043)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Amortization and depreciation 10,644 14,443
Net realized gain on sale of marketable securities
and investments (21,650) (25,982)
Increase in accounts receivable (8,795) (46,822)
Increase in inventory - (6)
Decrease in other assets - 7,887
Increase in accounts payable and accrued liabilities 54,271 64,008
Decrease in reclamation liabilities (39,590) (32,728)
Increase in notes payable to Baja Gold, Inc. 1,507 -
--------- ---------
Net cash used in operating activities (216,798) (266,243)
--------- ---------
Cash flows from investing activities:
Acquisition and exploration of mineral properties,
net of option payments received 71,852 9,790
Proceeds from sale of marketable securities and
investments 66,314 62,445
Proceeds from sale of mining equipment 57,500 -
Acquisition of mining equipment - (20,124)
--------- ---------
Net cash provided by investing activities 195,666 52,111
--------- ---------
Cash flows from financing activities:
Advances from International Mahogany Corp. 117,317 266,566
--------- ---------
Net cash provided by financing activities 117,317 266,566
--------- ---------
Net increase in cash and cash equivalents 96,185 52,434
Cash and cash equivalents at beginning of period 38,954 40,070
--------- ---------
Cash and cash equivalents at end of period $ 135,139 $ 92,504
========= =========
</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:
March 31, March 31,
1995 1994
---------- ----------
<S> <C> <C>
Operating expenses:
General and administrative expenses $ 232,239 $ 239,996
Exploration and property carrying costs 5,662 31,681
---------- ----------
Operating loss (237,901) (271,657)
Other income (expense):
Interest income 1,465 13,095
Net realized gain on sale of marketable securities 21,650 25,982
Other, net 1,601 (14,443)
---------- ----------
Net loss $ (213,185) $ (247,043)
========== ==========
Net loss per common share $ (0.01) $ (0.01)
========== ==========
Weighted average common shares outstanding 23,420,842 23,420,842
========== ==========
</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 March 31, 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
Net loss for period ended March 31, 1995 - - - (213,185) - (213,185)
---------- ---------- ----------- ------------ -------- -----------
Balance, March 31, 1995 23,420,842 $2,342,084 $48,545,382 $(48,127,092) $(17,395) $ 2,742,979
========== ========== =========== ============ ======== ===========
</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 has a working
capital deficiency of $490,882 and for the three months ended March 31, 1995,
incurred a loss of $213,185. At March 31, 1994 the Company had a working
capital deficiency of $446,754.
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 March 31, 1995, are of a normal recurring nature.
The operating result for the three month period ended March 31, 1995 is 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 PROCEEDINGS
On March 10, 1994, Frank B. Hammond, John Pappas, and Dallas Schaff,
individually and on behalf of themselves and all others similarly situated as a
class, filed an action in the United States District Court for the District of
South Carolina, Greenville Division, against William E. Grafham; Baja Gold,
Inc.; Dirk M. Lever; Thomas L. Crom; Anton R. Hendriksz; Nick DeMare; North Lily
Mining Company; International Mahogany Corp.; and John Does, being a designation
for directors and officers of North Lily who are presently unknown to the
Plaintiffs. The Plaintiffs alleged that the August 6, 1993 transaction
involving the disposition of International Mahogany Corp. (as more fully
described in Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations) was wrongful. Plaintiffs sought injunctive relief
and rescission of the transaction, as well as actual and punitive damages and
costs of the action. On October 27, 1994, the United States District Court in
Greenville, South Carolina, dismissed the lawsuit (the "South Carolina Action").
On July 11, 1994, the Company and William E. Grafham filed a complaint in the
United States District Court for the District of Colorado against Clarence
Taylor, Dorothy Frank, The Bottom Line, Inc., Taylor Frank & Associates, Inc.,
John W. Brown III, and Century Capital Corp. of South Carolina. The complaint
alleged that in connection with the South Carolina Action, the defendants
solicited $250 from each shareholder of the Company and in connection with such
solicitation, the defendants published false and defamatory information
concerning the Company and Mr. Grafham. The Company and Mr. Grafham sought
entry of a preliminary and permanent injunction enjoining the defendants from
soliciting moneys through the use of false and defamatory statements concerning
them.
7
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
In March 1995, a judgment was entered against Clarence Taylor, The Bottom Line,
Inc., and Taylor Frank & Associates, Inc. in the amount of $1,000,000. In
addition, these three defendants and Dorothy Frank (1) consented to the entry of
a permanent injunction enjoining them from making and/or publishing false and
defamatory statements concerning the Company, Mr. Grafham, the South Carolina
Action, and this lawsuit and (2) agreed that they will not bring any action
against Mr. Grafham or the Company that is identical to or similar in nature to
the South Carolina Action. In exchange for this agreement, Mr. Grafham and the
Company agreed not to pursue their claims for additional monetary damages.
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.
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. As at March 31, 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 March 31, 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 March 31, 1995, the Company has recorded $60,000 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 is
scheduled to close on or before June 30, 1995.
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 by June 30, 1995. 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. The bankable feasibility study commenced the
first week of May 1995 and UM Engineering, a member of the Union Minera Group,
has been retained to do the study. The completion of the bankable feasibility
will allow the Company, in conjunction with its partner, to seek project and
equity financing. Barring any unforeseen complication the Tuina project could
be in production in the next 14 to 16 months.
The effect on the Company's balance sheet will be the elimination of the
Company's indebtedness 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.
RESULTS OF OPERATIONS
The Company incurred losses of $213,185 and $247,043 for the three month periods
ended March 31, 1995 and 1994, respectively. There was no revenue, no
depreciation and amortization charges and no costs of sales for the three month
period ending March 31, 1995. The Company does not anticipate any revenue over
the next year from current properties.
During the three month period ended March 31, 1995, the Company incurred
$232,239 in general and administration expenses, compared to $239,996 for the
comparable period in 1994. Exploration and property carrying costs were also
reduced from $31,681 in 1994 to $5,662 in 1995. The reduced costs in 1995 is
due primarily to reduced activities.
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 agreed to a
restructuring of the ownership interest of the Tuina project. The Company
exchanged a 9% interest in Phoenix for the outstanding debt to Mahogany. See
Restructuring of Tuina Ownership.
9
<PAGE>
At March 31, 1995 the Company had a working capital deficiency of $446,754, a
decrease of $44,128 from its working capital deficiency of $490,882 at December
31, 1994.
The Company reports a use of funds of $216,798 from operating activities for the
three month period ended March 31, 1995. This compares to a use of funds of
$266,243 for the comparable period in 1994.
During the three month period ended March 31, 1995, the Company was provided
cash of $195,666 from investment activities. The Company received net proceeds
of $66,314 from the sale of its marketable securities, $71,852 proceeds from
option payments received and $57,500 from the sale of 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 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) The following exhibits are filed with this report.
Regulation
S-K Number Exhibit
---------- -------
27.1 Financial Data Schedule
(b) Reports on Form 8-K: none
10
<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
Chief Financial Officer and
Chief Accounting Officer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 135,139
<SECURITIES> 255,210
<RECEIVABLES> 57,996
<ALLOWANCES> 0
<INVENTORY> 101,750
<CURRENT-ASSETS> 550,095
<PP&E> 7,504,325
<DEPRECIATION> 2,478,957
<TOTAL-ASSETS> 5,025,368
<CURRENT-LIABILITIES> 996,849
<BONDS> 1,285,540
<COMMON> 2,342,084
0
0
<OTHER-SE> 418,290
<TOTAL-LIABILITY-AND-EQUITY> 5,025,368
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (213,185)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (213,185)
<INCOME-TAX> 0
<INCOME-CONTINUING> (213,185)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (213,185)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
