<PAGE>
IN ACCORDANCE WITH RULE 201 OF REGULATION S-T, THIS FORM 10K/A IS BEING FILED
PURSUANT TO A TEMPORARY HARDSHIP EXEMPTION.
FORM 1O-K/A
AMENDMENT NO. 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the Fiscal Year ended: December 31, 1995
----------------------------------------------------
Commission file number 0-16740
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NORTH LILY MINING COMPANY
-------------------------
(Exact name of registrant as specified in its charter)
Utah 87-0159350
- ----------------------------------------- ----------------------------
State or other jurisdiction (I.R.S. Employer
of incorporation or organization Identification No.)
210 - 1800 Glenarm Place, Denver, Colorado 80202
- -------------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 294-0427
------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock $.10 par value None
- ----------------------------------- ------------------------------------------
Securities registered pursuant to section 12(g) of the Act:
N/A
---------------------------------------------------
(Title of class)
Indicate by check mark whether the registrant (l) 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 the filing
requirements for at least the past 90 days.
Yes X No_______
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Aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 21, 1996: $4,370,328
------------
Number of shares outstanding of registrant's common stock, $.10 par value, as of
March 21, 1996: 28,057,403
------------------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (S 229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendments to this Form 10-K[_].
The Company's Proxy Statement for the 1996 Annual Meeting of Shareholders is
incorporated by reference in Part III, Items 10, 11, 12 and 13.
Exhibit index on consecutive page 29 Page 1 of 31 pages
<PAGE>
INDEX
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<TABLE>
<CAPTION>
PART I
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Page
<S> <C> <C>
Item 1. Business 3
Item 2. Properties 8
Item 3. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of Security Holders 18
<CAPTION>
PART II
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<S> <C> <C>
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 18
Item 6. Selected Financial Data 19
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 19
Item 8. Financial Statements and Supplementary Data 27
Item 9. Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure 27
<CAPTION>
PART III
--------
<S> <C> <C>
Item 10. Directors and Executive Officers of the Registrant 28
Item 11. Executive Compensation 28
Item 12. Security Ownership of Certain Beneficial Owners
and Management 28
Item 13. Certain Relationships and Related Transactions 28
<CAPTION>
PART IV
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<S> <C> <C>
Item 14. Exhibits, Financial Statements Schedules and
Reports on Form 8-K 29
</TABLE>
<PAGE>
PART 1
ITEM 1. BUSINESS
--------
GENERAL AND HISTORICAL BACKGROUND
- ---------------------------------
North Lily Mining Company ("North Lily") was incorporated in Utah in 1916 and
was a subsidiary of Anaconda Company from 1925 until 1949. During this period,
the Company produced gold, silver, lead, zinc and copper from the North Lily
Mine in the Tintic Mining District, Utah. From 1949 to 1987, the Company was
primarily engaged in the acquisition, exploration, and development of mining
properties. From 1988 to 1991, a Company subsidiary, International Mahogany
Corp. ("Mahogany"), a Canadian publicly-traded mining company listed on the
Toronto Stock Exchange, jointly with International Corona (Mahogany had a 70%
working interest), placed the Jolu Mine in Northern Saskatchewan, Canada, into
production and produced approximately 204,000 ounces of gold. In 1991, the
Company and Mahogany acquired the Tuina copper property in Chile, South America.
Since 1991, the Company and Mahogany have jointly been developing the Tuina
copper project. The Company and Mahogany have also operated a small heap leach
tailing recovery operation in Utah which has produced approximately 33,000
ounces of gold and gold equivalent since 1988, and is now in the reclamation
stage.
By way of a letter agreement dated August 6, 1993, North Lily sold to Baja Gold,
Inc. ("Baja"), a Canadian publicly-traded precious metals exploration and
development company listed on the Toronto and Vancouver Stock Exchanges, North
Lily's equity investment in Mahogany, consisting of 4,114,958 Class B
subordinate voting shares and 150,000 Class A common shares of Mahogany (in
aggregate representing an approximate 25% equity and 60% voting interest).
Consideration received from Baja included: cash of $500,000; a note issued by
Baja in the amount of $500,000, which was sold at face value on December 22,
1993 to reduce amounts owing to Mahogany; and 650,000 common shares of Baja,
valued, for financial statement purposes, at $680,000, based on the August 6,
1993 closing stock market price of Baja. As a result of the Company selling its
equity interest in Mahogany, Mahogany's financial statements are no longer
consolidated with those of the Company.
In September 1993, as a result of a change in corporate management, the
Company's corporate head office moved to Scottsdale, Arizona. In May 1994, as a
result of a further change in corporate management, the Company's corporate head
office moved to Denver, Colorado.
On April 12, 1995, the Company and Mahogany concluded an agreement on the
restructuring of the ownership interests of the Tuina project. In settlement of
the Company's outstanding debt to Mahogany of $797,481, the Company has reduced
its effective interest in the Tuina project from 50% to 41%. The agreement also
contains provisions in which the Company may be required to further reduce its
interest in the Tuina project and, in certain circumstances, recapture the
interest relinquished. See Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations for further discussion.
On November 17, 1995, the Company executed an Agreement and Plan of Share
Exchange (the "Agreement") with Tamarine Ventures Ltd., a company incorporated
under the laws of British Columbia, Canada ("Tamarine"). The Agreement provides
for the issuance, at closing, of one post-reverse stock split share of Common
Stock of the Company in exchange for each four common shares of Tamarine,
thereby making Tamarine a wholly-owned subsidiary of the Company (the "Share
Exchange"). At the closing of the Share Exchange, the Company would issue
2,000,000 post-reverse split shares of its Common Stock to the shareholders of
Tamarine.
The Agreement contemplates that Tamarine will acquire other businesses and/or
companies using shares of the Company's Common Stock and asset based financing.
On November 24, 1995, Tamarine executed a Business Sale
-3-
<PAGE>
Agreement (the "Cougar Acquisition") with Atlay Cat Sales and Services Pty. Ltd.
("Atlay") of Queensland, Australia, to acquire its business, known as Cougar
Catamarans. Cougar Catamarans manufactures and sells boats ranging in size from
7.5 to 35 meters, which include passenger ferries, pleasure boats, scenic tour
boats, fishing boats, dive boats, and patrol boats. Sales are made to countries
in the Pacific Rim: Japan, Hong Kong, China, Singapore, New Zealand, the United
States, Papua New Guinea, Tahid, Noumea, and the Maldives. The purchase price
is $2,500,000 plus the value at closing of inventory and work in process.
Closing of the Share Exchange is subject to a number of conditions including
regulatory acceptance, approval by the shareholders of the Company and
satisfactory results of due diligence investigations conducted by the Company
and Tamarine.
Subsequent to December 31, 1995, the Cougar Acquisition was not completed.
Tamarine and Atlay are currently in negotiations to revise and extend the Cougar
Acquisition.
At December 31, 1995, North Lily had the following subsidiaries and affiliates:
MINERA NORTHERN RESOURCES S.A. ("Northern"), a Chilean limited liability
company, 100% (active).
TENHARD RESOURCES, INC., a Montana corporation, 100% (inactive).
COMPANIA MINERA PHOENIX S.A., ("Phoenix") (formerly Compania Minera San
Martin S.A.), a Chilean limited liability company, 41% owned by Northern
(active).
MINERA SAN LORENZO LIMITADA ("San Lorenzo"), a Chilean limited liability
company, 50% owned by Northern (inactive).
North Lily and its subsidiaries are collectively referred to as "the Company".
Throughout this report, unless otherwise specified, all dollar amounts refer to
U.S. dollars.
From time to time management has written off certain costs associated with
various properties when it has become apparent that such costs would not be
recoverable. Management believes that the financial statements included herein
reflect capitalized costs (under Mineral Properties) that can be recovered and
that no further write-downs are necessary at this time.
The Company has a number of mineral properties in three countries; the United
States, Chile and Bolivia. The Company has interests in one project in the
United States and, as at December 31, 1995, a 41% equity interest in a copper
project in Chile and a 46% interest in an exploration gold property in Bolivia.
Historically, the Company's principal mineral target has been gold.
North Lily's common shares traded on the over-the-counter market for
approximately 60 years and, beginning in May of 1985, were included in the
National Association of Securities Dealers, Inc. system (NASDAQ Symbol: NLMC).
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
- ---------------------------------------------
The Company and its subsidiaries are primarily engaged in the gold and copper
business. (See Note 16 of Notes to Consolidated Financial Statements).
-4-
<PAGE>
SALES AND MARKETING
- -------------------
Gold, silver and copper can be readily sold on numerous markets throughout the
world and it is not difficult to ascertain the market price for such metals at
any particular time.
The Company's 50% owned Silver City mine produced gold and silver ore which was
processed at Handy & Harman refineries, and then sold to precious metal traders
on a competitive basis. The Silver City mine ceased mining operations in
February, 1993. Residual gold leaching continued during 1993 and the
reclamation process was implemented in 1994.
The Company's 41% owned Tuina mine produced copper precipitate which was
transported from Chile, South America and sold in the United States to a metal
trader on a competitive basis. The number of companies willing to purchase
copper precipitates is limited. The Company had an agreement with Metals
Concentrates International Inc. ("MCII") to purchase its copper precipitate for
1993. Operations at the Tuina mine were suspended in 1993 due to high
transport, refining and treatment charges and reduced copper prices. As a
result, the agreement with MCII was terminated. The Company does not plan to
resume production of copper precipitates and has determined the most effective
production process for the Tuina property is a solvent extraction/electrowinning
process ("SX/EW"). An SX/EW production process would allow the Company to
manufacture cathode copper at the mine site with significantly reduced operating
costs. In addition cathode copper is more readily marketable and the marketing
costs for this product are also significantly lower. In order for the Company
to produce copper utilizing the SX/EW process, an SX/EW plant is required to be
constructed at the mine site.
FOREIGN INVESTMENT IN CHILE
- ---------------------------
Any investment in Chile in excess of U.S. $10,000 must enter the country through
the Official Foreign Exchange Market, either under Chapter XIV of the Compendium
of Foreign Exchange regulations of the Central Bank or under Decree Law 600
(D.L. 600), the Foreign Investment Statute. Both laws guarantee access by
foreign investors to the Official Foreign Exchange Market in order to repatriate
capital and profits. The following is a brief summary of the significant
aspects of these laws.
CHAPTER XIV
1. The minimum investment amount is U.S. $10,000. Each remittance or investment
must be separately registered and approved by the Central Bank of Chile.
2. The investment may enter the country and be valued in freely convertible
foreign currency or in credits.
3. The capital invested may be repatriated after 36 months from the date of
entrance into the country. Profits arising from the investment may be
exported at any time.
4. The general tax regime described in Government Regulations below is
applicable.
5. In order to repatriate invested capital and/or profits from the investment,
the petitioner must deposit the equivalent in local currency at a Chilean
bank and must obtain the prior approval of the Central Bank. An affidavit
must be sworn attesting that the local currency used originates exclusively
from the business to which the original investment was made or from the sale
or liquidation of the original investment. Corresponding taxes must have
previously been paid.
-5-
<PAGE>
D.L. 600
1. The minimum investment amount is U.S. $25,000. After the approval of the
Foreign Investment Committee, a contract is entered into between the investor
and the State of Chile. Thereafter remittances or investments may be made
under the contract and each individual remittance need not be registered.
2. The investment may enter the country and be valued in:
- freely convertible foreign currency,
- tangible assets,
- credits,
- capitalization of foreign loans and debts, or
- capitalization of profits qualifying for remittance aboard.
3. The capital invested may be repatriated after 12 months have elapsed from
the date of entrance into the country. Profits arising from the investment
may be remitted any time.
4. Foreign investors have the right to elect to be subject to taxation at a
fixed overall income tax rate of 42% on taxable income for a 10 year term
which may be extended up to 20 years for projects in excess of U.S.
$50,000,000 in the manufacturing and extractive industries. Out of the
overall rate 15% First Category Tax is payable annually on accrued taxable
income. An additional tax of 27% is payable on dividends or distributed
profits.
The investor may waive this right and become subject to the general taxation
regime described below in Government Regulations.
5. In order to repatriate capital contributions and/or profits, the petitioner
must deposit the equivalent in local currency at a Chilean bank and obtain
the prior approval of the Central Bank. An affidavit must be sworn attesting
that the local currency used originates exclusively from the business to
which the original investment was made or from the sale or liquidation of
the original investment. Corresponding taxes must have previously been paid.
To date all of the Company's investment in Chile has been made via D.L. 600.
GOVERNMENT REGULATIONS
- ----------------------
The Company's mining, processing and exploration activities are subject to
various laws governing the protection of the environment, prospecting,
development, production, exports, taxes, labour standards, occupational health,
waste disposal, toxic substances, mine safety and other matters. Mining
operations and exploration activities are also subject to substantial regulation
under these laws by governmental agencies.
Failure to comply with applicable laws and regulations may result in orders
being issued that may cause operations to cease or be curtailed or may require
installation of additional equipment. Violators may be required to compensate
those suffering loss or damage by reason of violations and may be fined if
convicted of an offense under such legislation.
The Company believes it is in compliance with all material laws and regulations
applicable to it or its operations. Additional legislation or amendments may be
proposed from time to time that might affect the Company's business.
-6-
<PAGE>
The Company is unable to predict in advance which proposals may be enacted or
their effective dates. Such changes could, however, require increased capital
or operating expenditures or both, and could prevent or delay certain operations
by the Company.
Outlined below are some of the more significant aspects of governmental controls
and regulations which materially affect the Company.
In the United States the Company is subject to federal and state income taxes,
state and local franchise taxes, personal property taxes and state severance
taxes. State severance taxes vary between the states and within a single state.
The amount of the tax, based on a percentage of the value of the mineral being
extracted, may vary from mineral to mineral. Operations are subject to taxation
by each locality in which mineral properties are owned or business is done.
Because many state and local tax laws are not uniform, the Company runs a risk
of double taxation on portions of its income by various jurisdictions. This may
adversely effect earnings, if any.
In Chile the Company is subject to income taxes on earnings, if any. A "first
category" tax rate of 15% is applied on taxable income.
Amounts distributed from Chile to non-residents are subject to an additional tax
of 35%, against which the "first category" corporate tax may be credited. The
current combined effect of these taxes on distributed income for non-residents
is an effective tax rate of 35%. There are no taxes on the value of the mineral
being extracted. There are also some minor municipal taxes.
ENVIRONMENTAL REGULATIONS
- -------------------------
UNITED STATES
Legislation and implementing regulations adopted or proposed by the United
States Environmental Protection Agency, the Bureau of Land Management ("BLM")
and comparable agencies in various states directly and indirectly affect the
mining industry in the United States. These laws and regulations address
potential contamination of air, soil and water from mining operations. In
particular, legislation such as the Federal Water Pollution Control Act, the
Comprehensive Environmental Response and the Compensation and Liability Act
impose effluent standards, new source performance standards, air quality and
emission standards, waste disposal requirements and other requirements with
respect to present, and in some cases past mining and mineral processing,
including gold mining.
U.S. mine operators must comply with the Federal Mine Safety and Health Act,
which is enforced by the Mine Safety and Health Administration ("MSHA"), an
agency within the Department of Labour. All mines, both underground and surface,
are subject to inspections by MSHA. The Occupational Safety and Health
Administration also has jurisdiction over safety and health standards not
covered by the Federal Mine Safety and Health Act, although there are areas
where the authority of both administrative agencies overlap.
With respect to operations in the United States, the Montana Department of Lands
administers the Montana Metal Mine Reclamation Act and the Montana Environmental
Policy Act, the purposes of which are to protect the usefulness, productivity
and scenic values of the State's lands and waters and to reclaim to beneficial
use the lands used for metal mining. The Montana Department of Health and
Environmental Sciences administers and enforces air, water and waste regulations
through various bureaus existing under that Department, such as the Montana Air
Quality Act and the Montana Water Quality Act. The Water Rights Bureau under the
Montana Department of Natural Resources and Conservation, reviews existing and
proposed surface and ground water rights and uses.
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<PAGE>
Existing laws and regulations with respect to the reclamation of mining
operations are in place and may necessitate substantial planning and bonding
requirements.
The Company may be required to prepare and present to federal, state or local
authorities data pertaining to the effect or impact that any proposed
exploration for, or production of, minerals may have upon the environment.
It may be anticipated that future legislation will significantly emphasize the
protection of the environment, and that as a consequence, the activities of the
Company may be more closely regulated to further the cause of environmental
protection. Such legislation, as well as future interpretation of existing
laws, may require substantial increases in equipment and operating costs to the
Company and delays, interruptions, or a termination of operations, the extent of
which cannot now be predicted.
CHILE
With respect to operations in Chile, the government administers and enforces
mining laws and regulations. These laws and regulations are principally
administered by Servicio Nacional de Geologia y Minas ("Sernageomin").
No bonding requirements or environmental impact statements are required in
Chile. However, the current government in Chile has indicated that additional
regulations or laws may be introduced which emphasize the protection of the
environment. As a consequence, the activities of the Company may be more
closely regulated to further the cause of environmental protection. Such
legislation, as well as future interpretation of existing laws, may require
substantial increases in equipment and operating costs to the Company and
delays, interruptions, or a termination of operations, the extent of which
cannot now be predicted.
EMPLOYEES AND FACILITIES
- ------------------------
As of March 31, 1996, the Company has three employees in the U.S. through its
joint projects, two in Chile through its joint Tuina project, and the following
company officers: Stephen E. Flechner, President and Chief Executive Officer;
W. Gene Webb, Executive Vice-President and Corporate Secretary; John R. Twohig,
Vice-President of Corporate Development; and Nick DeMare, Treasurer.
North Lily's office in Denver, Colorado is leased.
The office of the Company's wholly owned Chilean subsidiary, which is leased, is
located at Napoleon 3200 Suite 707, Las Condes - Santiago, Chile.
ITEM 2. PROPERTIES
----------
The Company has acquired and maintained its mining claims in a manner that is
consistent with common industry practice and believes that title to all its
material properties and mineral interests is satisfactory.
UNITED STATES
All of the Company's properties in the United States consist of unpatented
and patented mining claims, and are owned by the Company or its
subsidiaries or leased from third parties.
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<PAGE>
Unpatented mining claims are located upon public land pursuant to
procedures established by the General Mining Law of 1872 and related laws
of the various states. Requirements for the location of a valid mining
claim on public land depend on the type of claim being located and the
relevant state law, but generally include discovery of valuable minerals,
erecting a monument and posting on it a location notice, marking the
boundaries of the claim, and filing a certificate of location with the
county in which the claim is located and with the BLM. If the statutes and
regulations for the location of a mining claim are complied with, the
locator obtains a valid possessory right to the claim and the right to
mine, remove and sell the contained minerals. To maintain an otherwise
valid claim, a claimant must also annually perform a specified amount of
work, or pay rental fees directly to the BLM, and make certain additional
filings with the county and the BLM. Failure to perform such work or make
the required filings in a timely manner may render the mining claim void or
voidable.
Because mining claims are self-initiated and self-maintained, they possess
some unique vulnerabilities not associated with other types of property
interests. It is impossible to ascertain the validity of unpatented mining
claims from public real estate records alone, and therefore, it can be
difficult or impossible to confirm that all of the requisite steps have
been followed for location and maintenance of a claim. If the validity of
an unpatented mining claim is challenged by the federal government or by
claimants of conflicting rights to the ground, the claimant has the burden
of proving the present economic feasibility of mining minerals located
within the claim as well as the steps taken to perfect the claim's
location. Thus, it is conceivable that during times of falling metals
prices, claims which were valid when located could become invalid if
challenged.
The patent procedure permits claimants to purchase from the federal
government fee title to claims upon demonstrating that the mineral deposit
on the claims can be mined at a profit and by satisfying other procedural
requirements. Patented mining claims are similar to other fee real property
interests. Significant portions of the Company's United States properties
consist of patented mining claims on which the Company's relevant local
counsels have given their opinion that the Company, or the entity through
which the Company holds rights to mine the property, has good title.
CHILE
In Chile the State is the owner of all mineral and fossil substances
regardless of the surface ownership, but mining concessions may be obtained
for the purpose of exploring or exploiting the underlying property in
accordance with a jurisdictional process regulated by the Mining Code.
The acquisition of title to new exploration mining concessions is a
detailed jurisdictional process which can be divided into three stages:
(1) The recording of the application for an exploration mining concession
("Pedimento") covering the desired ground before the Court and Mining
Register of the relevant county ("Comuna") where the ground is located
and its publication in the official Gazette. All persons (except
certain government officials, some of their relatives and other
similar persons) may prospect on any land not cultivated or enclosed.
(2) The request for a Court judgment formally constituting and granting
the concession ("Sentencia") during which process a judge checks the
procedure and the payment of certain fees, and representatives of the
National Geological and Mining Service check the technical aspects of
the title to the ground.
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<PAGE>
(3) The issuance by the court of the constituting "Sentencia" whereby a
two-year exploration mining concession is granted from the date of the
"Sentencia". This "Sentencia" then has to be published in extract in
the official Gazette and recorded in the corresponding Mining Register
within a certain period of time.
Prior to its expiration the owner of an exploration mining concession may
conduct all kinds of exploration activities, may apply for an exploitation
mining concession ("Pertenencia") to the corresponding judge (which also
requires a jurisdictional process), and may request easements or facilities
from neighbour concessions or from surface land owners, as necessary. Prior
to expiration of exploration mining concessions, a single extension for a
further two years can be applied for, however, in order to obtain such
extension, the area of the concession must be reduced by 50%. An
alternative to extension is to obtain one or more exploitation mining
concessions (or Pertenencia) over the same ground.
In order to obtain an exploitation mining concession (which permits
commencement of production from a mineral property) it is necessary to go
through a process which is similar in its structure to that for obtaining
an exploration mining concession but requires a longer time period. An
application ("Manifestacion") for the concession must initially be recorded
and, following certain additional procedures, a request for a formative
survey of the concession ("Mensura") is made. Following the survey
(location on the ground of the boundaries of the concession) and certain
additional procedures, including opportunities for third parties to put
forward opposition to the survey of the concession, a formative judgment
("Sentencia") is issued and the exploitation mining concession is formally
granted. All exploitation mining concessions are granted for an indefinite
period.
"Pedimento", as well as exploration mining concessions and exploitation
mining concessions ("Concessions") are transferable and irrevocable but
only Concessions can be mortgaged. Both are regulated by the same civil law
rules that regulate real estate and fixed assets, save that they are not
subject to attachments.
Chilean mining law recognizes a preference to a Concession owner and not to
the land surface owner because the State is interested in the development
of mining resources. However, in the case of houses and their immediately
surrounding lands, or lands where vineyards and fruit trees are planted,
only the owner may grant the permission to a Concession holder to obtain
easements and surface rights.
The owner of a Concession, commencing as of the date of the request of the
Sentencia, has to pay a yearly licence fee to the State in order to
maintain its property over the same. Lack of payment may cause loss of
ownership through auction by the State, although the licence fee can be
paid up to the day of auction to prevent any loss. License fees are
significantly higher for exploitation mining concessions than for
exploration mining concessions.
EXPLORATION BUDGET - 1996
The following table lists the properties in which the Company has an interest,
and the 1996 exploration budget for each property. In approving the 1996
budgets for mineral properties, the Company considers a number of factors, among
them are: total capital resources available to the Company, joint venture
participation, terms of joint venture agreement (if applicable), estimated
length of time before the property could be placed into production and activity
in the immediate area, evaluation of preliminary geological data, anticipated
costs and geologic location.
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<TABLE>
<CAPTION>
PROPERTY PORTFOLIO
-------------------------------
Approximate
Property Interest Held 1996
Size by the Company Exploration
Property Name State Location (Acres) as of 12/31/95 Budget
- ------------ ----- ------------- ------- ----------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
San Simon Beni Bolivia 13,087 46% $120,000 /(2)/
Silver City Utah United States 20 50% -
Tintic Utah United States 6,000 5% NSR/(1)/ 150,000 /(3)/
Tintic Utah United States 4,440 100% -
Tuina Region II Chile 15,013 41% -
--------
TOTAL $270,000
========
</TABLE>
(1) NSR - Net Smelter Return
(2) Minimum work commitment to be incurred on the property, of which the
Company's portion is $60,000.
(3) Minimum expenditure commitment to be incurred by lessee of property
Due to the Company's current financial situation it does not plan to conduct any
significant exploration activities in 1996. Activities will be limited to
making required property payments to maintain the Company's interest, unless a
joint venture or acquisition and related financing is accomplished.
During 1995 the Company assessed the capitalized costs of its mineral properties
in the United States and Chile. In the opinion of management it was appropriate
to write-off the remaining $71,397 carrying value and reverse an accrual of
$23,000 for the Nine Mile Property, for a net charge of $48,397 as abandonment
of mineral properties.
RESERVES
MINERALS
- --------
The proven and probable ore reserves stated in this report are geologic reserves
that reflect drill-based estimates of the quantities and grades of mineralized
material at the Company's mines which the Company believes can be recovered and
sold at prices in excess of the cash cost of production.
The estimates are based largely on current costs and on the projected prices and
demand for the minerals based upon factors relevant to each mine. Ore reserves
are based on calculations of geologic reserves provided to the Company by the
operator. The Company has reviewed but has not independently confirmed those
calculations.
Ore reserves are reported as general indicators of minimum mine life. Changes
in reserves represent general indicators of the results of efforts to develop
additional reserves as existing reserves are depleted through production.
Grades of ore fed to process may be different from stated reserve grades because
of variation in grades in areas mined from time to time, mining dilution and
other factors. Recovered grades reflect variations in the characteristics and
payable content of ore fed to process and the success of efforts to improve
processing efficiencies.
Reserves should not be interpreted as assurances of mine life or of the
profitability of current or future operations.
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<PAGE>
MINERAL PROPERTIES
The Company has acquired rights to various mineral properties in Chile, Bolivia
and the States of Montana and Utah. The following is a description of certain of
the Company's mineral properties.
TUINA PROJECT
Ownership:
- ----------
The Tuina properties are held by Phoenix, a Chilean company that is owned 41% by
the Company and 59% by Mahogany at December 31, 1995. During 1995, the Company,
Mahogany and Yuma Gold Mines Limited ("Yuma") entered into a number of
agreements which may result in Yuma acquiring Mahogany's interest in the Tuina
properties. Yuma may also increase its ownership in the Tuina property by a
further 15%. See Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Description of Property:
- ------------------------
The property is located approximately 60 kilometers (37 miles) east of Calama,
in Region II in the Country of Chile and consists of a total of 6,080 hectares
(15,013 acres).
Hectares - Net
--------------
394 San Jose Lease
5,686 Other properties
-----
6,080
=====
Mineralization:
- ---------------
To date the Company has calculated a mineable tonnage of 3.5 million metric
tonnes of copper ore contained in the San Jose and San Martin pits at an
estimated soluble copper grade of 1.1%. The estimated stripping ratio to mine
this tonnage would be 2.3 to 1.
Description of Property Agreements:
- -----------------------------------
(1) San Jose Lease:
---------------
The San Jose Lease covers an area of 394 hectares and hosts all, or
substantially all, of the current proven reserves. There are two known
areas of copper mineralization on this property called the San Jose pit and
the San Martin pit. To date all production has been from properties held
under this lease. During 1994 Phoenix renegotiated its lease on the
property (the "Operating Lease"). The Operating Lease has a term of 30
years and requires a payment of 5% of the copper produced with a minimum
payment of 16 tonnes of copper per month. Under the terms of the Operating
Lease the obligation to make the minimum lease payments has been waived
until August 1995 and in return a payment of $200,000 was made. This
$200,000 payment represented an advance payment against which future lease
payments could be offset. Since August 1995 the minimum lease payments have
been partially met through application of this advance payment. The minimum
lease payment is a cost which is funded by Yuma pursuant to the Tuina
agreements. In addition Phoenix has agreed to make certain bank payments
while the Operating Lease is in effect. The payments required of Phoenix
are shown below:
<TABLE>
<S> <C>
1996 $ 305,000
1997 $ 291,000
1998 $ 278,000
1999 $2,285,000
</TABLE>
-12-
<PAGE>
Included in the 1999 payments is a lump sum payment of approximately
$2,196,000. This amount is payable only if Phoenix is producing from the
leased claims.
Phoenix has also agreed to pay the property owner $8,000 per month, for the
lease of certain equipment. This agreement will allow the Company to
continue using the equipment after the lease on the mineral properties has
expired. This obligation to pay $8,000 per month will only commence when
the Operating Lease is terminated or when it expires.
(2) Other Properties:
-----------------
The Company has the exploration rights for an additional 5,686 hectares
which are not subject to any underlying royalties or agreements. The
Company is in the process of transforming these exploration rights to
exploitation rights. There are two known areas of copper mineralization on
this property called Inca and Milagro.
Prior Activities:
- -----------------
Since its acquisition in June 1991, the Company has expanded the camp facilities
to accommodate 120 persons and completed a detailed mine plan for the production
of copper precipitate. In December 1991 the first section of the leach pad was
completed.
In 1991 and 1992 the Company carried out several drill programs on the
properties.
The Company started mining operations in the first quarter of 1992, producing
copper precipitates. Mining stopped later in 1992 due to a dispute with the
mining contractor (see also Item 3, Legal Proceedings). The mining contractor
was able to obtain a temporary embargo during 1992 preventing the Company from
achieving its planned levels of production. The embargo was removed during the
fourth quarter of 1992 and new contracts were signed with a replacement to
provide services for crushing, transportation, drilling and blasting.
Due to high transportation and refining and treatment charges and reductions in
the price of copper, the Tuina Mine was experiencing negative cash flow
throughout 1993. As a result of these factors, the Company and Mahogany
suspended production of copper precipitates and put the mine on a care and
maintenance program. Employment of a significant portion of the mine's
workforce was terminated and the mine office in Calama was closed during 1993.
The last shipment of copper precipitates was made in July 1993.
A reverse circulation drill program was completed in 1994. The drill program
has confirmed a probable (geological) reserve of approximately 1.772 million
tonnes grading 1.7% total copper (1.1% soluble) at the San Jose pit, and a
probable (geological) reserve of 2.075 million tonnes grading 1.3% total copper
(1.2% soluble) at the San Martin pit. At both prospects sulfide mineralization
was encountered below the oxide zone.
1995 Activities:
- ----------------
During 1995, Yuma commissioned UM Engineering ("UM") to prepare an independent
bankable feasibility study on the economics of a solvent extraction /
electrowinning ("SX/EW") plant for the Tuina Project. UM delivered its report
in July, 1995 (the "UM Report"). The UM Report concluded that, based on current
reserves of approximately 38,000 tons of recoverable copper, a 6,000 ton per
year plant could generate a rate of return of 26% and achieve payout in
approximately four years. In addition, the economics of the SX/EW plant could
be improved by: conducting a mining survey to increase proven reserves;
obtaining other ore sources from surrounding properties; and/or decreasing the
capital investment by using second hand equipment or subcontracting parts of the
operation.
-13-
<PAGE>
1996 Planned Activities:
- ------------------------
Activities on the Tuina Project have been curtailed pending completion of Yuma's
proposed acquisition of Mahogany's 59% interest in Phoenix. Yuma is currently
funding ongoing costs relating to the Tuina Project. It is expected that once
this transaction closes Yuma will proceed with bringing the Tuina copper project
into production. Yuma, Mahogany and Company management are reviewing and
assessing alternatives to further improve the economics of the Tuina Project.
TINTIC PROPERTIES
Ownership:
- ----------
The properties are held 100% by the Company.
Description of Property:
- ------------------------
The property is located in the Tintic Mining District, Utah and Juab Counties in
the State of Utah, approximately 80 miles south of Salt Lake City. The property
comprises (1) surface and mineral rights on approximately 8,115 acres of
patented lode mining claims and other patented land owned in fee simple; (2)
2,200 acres of patented land with agricultural and mineral rights; (3) city lots
in Eureka, Utah, covering 21 acres; (4) 104 acres of unpatented mining claims;
and (5) 20 acres without mineral rights. In addition, the Company owns 28 acres
of patented lode mining claims and two unpatented lode mining claims in the
Tintic Mining District, Juab County, Utah.
Mineralization:
- ---------------
There are currently no gold reserves identified on the properties, however deep
exploration targets are renewing the interest of several companies.
Description of Property Agreements:
- -----------------------------------
The Company owns the Tintic properties outright and has no obligations for
underlying payments other than annual fees to the State of Utah.
On January 23, 1987, the Company entered into a ten-year mining lease with
Centurion Mines Corporation, a non-affiliated mining company, covering
approximately 6,000 acres. The lease, which specifically excludes the mine
dumps and tailings, Silver City mill, and existing grazing leases, requires a
production royalty equal to a 5% NSR. During 1991 North Lily renegotiated its
mining lease. The lessee is required to make advance royalty payments of
$27,500 in 1992, $27,500 in 1993, $27,500 in 1994 and $75,000 thereafter
(payments to 1996 have been received). The lessee is also required to fulfil a
work commitment with respect to the leased premises at a minimum cost to lessee
of $50,000 in 1992, $50,000 in 1993 and $150,000 during each succeeding year.
Prior Activities:
- -----------------
To date the lessee has made all lease payments and has fulfilled all work
commitments on exploration and development in the Tintic Mining District since
negotiating the lease agreement.
Planned 1996 Activities:
- ------------------------
The property remains subject to a lease agreement with Centurion Mines
Corporation who are operators of the property. Centurion Mines Corporation have
advised the Company that they will be spending at least $150,000 in exploration
work on the property in order to fulfil their work commitments.
-14-
<PAGE>
SILVER CITY JOINT VENTURE
Ownership:
- ----------
The joint venture property is owned 50% by North Lily and 50% by Mahogany.
Description of Property:
- ------------------------
The joint venture property is located in Juab County, approximately 80 miles
south of Salt Lake City, Utah and consists of approximately 20 acres.
Mineralization:
- ---------------
The Silver City Joint Venture was a project designed to extract gold and silver
from a previous mine's tailings using a heap leach process. The project is now
undergoing reclamation work, while considering leaching opportunities, and it is
not known if the project will produce any further gold or gold equivalent.
Description of Property Agreement:
- ----------------------------------
Pursuant to an agreement dated July 21, 1987, the Company conveyed a 50%
undivided beneficial interest, in the joint property, to Magellan Resources Inc.
("Magellan"), a wholly-owned subsidiary of Mahogany. To earn its 50% interest
Magellan funded the initial $300,000 development expenditures of the joint
venture.
Prior Activities:
- -----------------
All necessary environmental and building permits were obtained for the heap
leach facility in early 1988. Construction of the facility and pad was completed
by June 1988 at a total capitalized cost of approximately $1,700,000. The joint
venture was considered to be in a pre-production status until October 1, 1988.
The excess of revenues from costs from June 1988 through September 1988 were
netted against capitalized costs, which reduced capitalized costs by $500,267.
Silver City produced gold and silver through heap leaching with cyanide. The
gold and silver is recovered through zinc precipitation. A gold/silver ore is
produced at the plant and then sold to a refinery. To date Silver City has
processed only the mineral tailings dumps from the nearby area.
<TABLE>
<CAPTION>
Production ounces 1995 1994 1993
----------------- ---- ---- ----
<S> <C> <C> <C>
Gold equivalent -0- -0- 737
Silver conversion rate N/A N/A 90:1
</TABLE>
During 1994 the Company proceeded with the closure and reclamation of the Silver
City heap leach facility. The Company sold non-essential equipment and leased
and commenced use of carbon columns to recover precious metals and base metals
in the pregnant solution for income and reclamation purposes.
Planned 1996 Activities:
- ------------------------
The remaining reclamation costs have been budgeted for $440,000 of which
$220,000 is the Company's share. Approximately $165,000 in state reclamation
bonds have been jointly posted. After reclamation work is completed, to the
satisfaction of regulatory authorities, the reclamation bonds are to be
returned. Funding of reclamation work in 1996 remains a substantial burden to
the Company.
-15-
<PAGE>
SAN SIMON PROPERTY
Ownership:
- ----------
On April 1, 1995, the Company and Akiko Gold Resources Ltd. ("Akiko"), entered
into a letter of agreement (the "San Simon Agreement") with Robert S. Friberg
and Marcelo Claure Z. (jointly "Friberg/Claure") whereby Friberg/Claure agreed
to acquire mineral properties located in the San Simon region of Bolivia on
behalf of Akiko and the Company (collectively the "Companies"). Friberg/Claure
will retain an 8% carried interest, with the Companies funding all costs and
obligations on a 50/50 basis. To date Friberg/Claure have acquired four
concessions (the "San Simon Property") from a third party. Friberg/Claure are
to transfer the San Simon Property to a Bolivian subsidiary to be established by
the Company. The Companies do not anticipate any further properties to be
acquired under the San Simon Agreement. Through December 31, 1995, the Company
has paid $40,338 to Friberg/Claure relating to costs incurred pursuant to the
San Simon Agreement and property payments made on the San Simon Property.
Description of Property:
- ------------------------
The San Simon Property consists of four concessions, known as "Pedro Ricardo I"
and "Pedro Ricardo II", "Machetero I" and "Machetero II" and is located in
northeastern Bolivia, adjacent to the Brazilian border within the Amazon Basin,
in the area of San Simon, Canton Mategua, Province of Itenez, State of Beni and
consists of approximately 5,300 hectares.
Mineralization:
- ---------------
There are no known gold reserves on the San Simon Property at this time.
Description of Property Agreement:
- ----------------------------------
Pursuant to the terms of a property concession agreement entered into on behalf
of the Companies, the Companies are required to make total payments of $300,000
to the vendor over a three year period. The Companies have paid $25,000 to date
and are required to pay: $10,000 on March 31, 1996 (paid) and $10,000 on April
30, 1996; $40,000 on November 12, 1996; $40,000 on May 12, 1997; $50,000 on
November 12, 1997 and $125,000 on May 12, 1998. The San Simon Property is also
subject to a 5% net profits interest ("NPI") in favour of the vendor. The
Companies may purchase a 2% NPI at any time during the exploration phase upon
payent of $1,700,000. The Companies would then also hold a right of first
refusal on a 2% NPI of the remaining 3% NPI. The term of the agreement is for
twenty years and the Companies can terminate the agreement without penalty on 30
days notice.
Pursuant to the San Simon Agreement, the Companies have also agreed to a yearly
work commitment of $30,000 per quarter. In addition, the Companies may be
obligated to pay Friberg/Claure the following amounts: $10,000, in cash or
common stock of the Companies, upon the first transfer of a property to a
Bolivian subsidiary, to be established by the Companies; $20,000, in cash or
common stock of the Companies, when a total of $200,000 has been spent on the
properties acquired pursuant to the San Simon Agreement; $50,000 upon completion
of a feasibility study on any properties acquired pursuant to the San Simon
Agreement.
Prior Activities:
- -----------------
The Companies are not aware of any prior work on the San Simon Property.
However, the region was worked on as early as 1688 and recently sporadic
production has taken place from gold-rich zones adjacent to the San Simon
Property by a number of local miners. It is estimated that they are removing
approximately two kilograms of gold per day by using crude mining methods.
1995 Activities:
- ----------------
Minimal work was performed on the San Simon Property in 1995.
-16-
<PAGE>
Planned 1996 Activities:
- ------------------------
The Companies are seeking a joint venture partner to help exploit the San Simon
Property and have had discussion with several major mining companies. If the
Companies are unable to conclude any arrangements the Companies will commence
work on the San Simon Property pursuant to the terms of its agreements.
MONTANA PROPERTIES
The Company holds various interests in a number of properties in the State of
Montana. There are no obligations for underlying payments other than annual
state fees to the State of Montana. The Company has not conducted any
exploration work in 1995 on these properties. Costs relating to these
properties were mostly written off in prior years. As at Decenber 31, 1995 the
Company is carrying these properties at $8,395.
ITEM 3. 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 North Lily Mining Company,
International Mahogany Corp. and a number of other parties consisting primarily
of former directors and officers. The Plaintiffs alleged that the August 6,
1993 transaction involving the disposition of International Mahogany Corp. was
wrongful. 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. In March 1995, a judgment was entered
against the defendents in the amount of $1,000,000. Subsequent thereto, the
defendents (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. The Company considered that it was unlikely to
realize on the judgment entered against the defendents.
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. Mr. Holcomb, however, had
calculated the vacation pay owing as significantly higher. The Company disputes
Mr. Holcomb's computation. 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 April 30, 1996 has been scheduled.
During 1992, a dispute developed over a Chilean mining contractor's billings to
the Company's affiliate in Chile, Compania Minera Phoenix SA ("Phoenix").
Subsequently, Phoenix and the mining contractor agreed to settle the dispute
through arbitration and an agreement was reached with the mining contractor in
February 1994. In settlement
-17-
<PAGE>
of all claims, Phoenix agreed to pay the mining contractor $180,000. To date
payments of $120,000 have been made and the final instalment of $60,000 has not
been paid as the Contractor has subsequently gone bankrupt.
On June 23, 1993, Jack M. Scanlon and Carolyn M. Scanlon; Dr. Richard Urwiller
and Roberta Urwiller, Dr. William Inkret, Jr., M.D., individually and Dr.
William Inkret, Jr., M.D., P.C., a corporation and profit sharing trust; Dr.
Richard Granberg and Mary Granberg, on behalf of themselves and all other person
similarly situated, filed an action in the United States District Court for the
District of Montana, Butte Division, against Magellan Resources Inc., a
corporation; Mahogany International Inc. (sic), a corporation, former
subsidiaries of North Lily Mining Company, a corporation, their former parent
corporation; Ruen Drilling, a corporation, Longyear Company, a corporation; and
other unknown John Doe persons and corporations. The plaintiffs allege, that,
as a result of exploration activity in the Southern Cross area of Montana, local
ground water supplies have been contaminated and reduced. No specific stated
claim for damages have been made at this time. Despite studies prepared
privately and by the Department of State Lands (Montana) in 1992 which found no
evidence of earlier claims, the Plaintiffs continue to seek alternative legal
approaches against the defendants. Initial discovery proceedings have been
completed. The Company believes the claims are without merit and have
instructed its legal counsel to file for a summary judgment for dismissal.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
--------------------------------------
North Lily's common stock has traded on the over-the-counter market for
approximately 60 years and was included in the NASDAQ system beginning May of
1985 (symbol: NLMC). The range of high and low bid prices for each fiscal
quarter during the two most recently completed fiscal years and the current
fiscal year as reported on NASDAQ is as follows:
<TABLE>
<CAPTION>
1995 High Low
---- ---- ---
<S> <C> <C>
First quarter $0.19 $0.12
Second quarter $0.25 $0.12
Third quarter $0.22 $0.12
Fourth quarter $0.16 $0.06
1994 High Low
---- ---- ---
First quarter $0.53 $0.38
Second quarter $0.34 $0.19
Third quarter $0.38 $0.12
Fourth quarter $0.25 $0.09
</TABLE>
On March 21, 1996, the high bid price of the common stock was $0.125 per share.
-18-
<PAGE>
The above bid quotations reflect inter-dealer prices, without retail mark-up,
mark-down, or commission and may not necessarily represent actual transactions.
As of March 21, 1996, there were 10,494 shareholders of record of North Lily's
common stock.
North Lily has not paid or declared any cash dividends and does not anticipate
paying dividends for the foreseeable future. It is expected that any net income
will be retained by North Lily for the development of its business.
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues - - $1,409,836 $3,194,916 $13,134,403
Loss from continuing operations
before extraordinary item $ (995,782) $(2,071,147) $(6,286,733) $(4,697,928) $(11,929,642)
Loss before extraordinary item $ (995,782) $(2,071,147) $(6,271,619) $(5,210,307) $(11,934,592)
Net loss $ (922,032) $(2,071,147) $(6,271,619) $(5,210,307) $(11,934,592)
Loss per share from continuing
operations before extraordinary item $(0.04) $(0.09) $(0.27) $(0.25) $(0.63)
Loss per share before extraordinary item $(0.04) $(0.09) $(0.27) $(0.25) $(0.63)
Net loss per share $(0.04) $(0.09) $(0.27) $(0.28) $(0.63)
Total assets from continuing
operations $4,201,720 $5,105,048 $6,354,791 $21,049,824 $27,975,190
Total assets $4,201,720 $5,105,048 $6,354,791 $22,467,197 $31,739,931
Non-current liabilities $385,000/(2)/ $1,168,223/(3)/ - - -
Book value per share/(1)/ $0.12 $0.13 $0.22 $0.23 $0.58
Cash dividends declared - - - - -
</TABLE>
/(1)/ Based on the outstanding number of shares less treasury stock.
/(2)/ Comprises of $165,000 of unpaid 1994 salaries and $220,000 unpaid 1995
salaries to officers.
/(3)/ Includes $354,250 of indebtedness to be settled by the issuance of Company
stock, at an ascribed price of $0.30 per share, and $165,000 of unpaid
salaries to officers of the Company in which the officers have the option
to accept common shares of the Company, at an ascribed price of $0.30 per
share.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
CORPORATE PROFILE AND HISTORY
North Lily was incorporated in Utah in 1916 and was a subsidiary of Anaconda
Company from 1925 until 1949. During this period, the Company produced gold,
silver, lead, zinc and copper from the North Lily Mine in the Tintic Mining
District, Utah. From 1949 to 1987, the Company was primarily engaged in the
acquisition, exploration, and development of mining properties. From 1988 to
1990, a Company subsidiary, International Mahogany Corp. ("Mahogany"), a
Canadian publicly-traded mining company listed on the Toronto Stock Exchange,
jointly with International Corona
-19-
<PAGE>
(Mahogany had a 70% working interest), placed the Jolu Mine in Northern
Saskatchewan, Canada, into production and produced approximately 204,000 ounces
of gold. In 1991, the Company and Mahogany acquired the Tuina copper property in
Chile, South America. Since 1991, the Company and Mahogany have jointly been
developing the Tuina copper project. The Company has also operated a small heap
leach tailing recovery operation in Utah ("Silver City") which has produced
approximately 33,000 ounces of gold and gold equivalent since 1988. Silver City
is currently in the process of site reclamation work.
RESTRUCTURING OF TUINA OWNERSHIP
Effective April 12, 1995, the Company and Mahogany agreed to a restructuring of
the ownership interest of the Tuina Project. In settlement of the Company's
outstanding debt to Mahogany of $797,481, as at March 28, 1995, the Company
reduced its ownership interest in Compania Minera Phoenix S.A. ("Phoenix") from
50% to 41%. The Company also agreed to terms by which the Company's remaining
interest in the Tuina Project will be impacted. Subsequently, Mahogany agreed
to sell its 59% interest in Phoenix to Yuma Gold Mines Limited ("Yuma"). The
sale to Yuma was extended on several occasions and the terms subsequently
revised (the "Mahogany-Yuma Agreement").
By previous agreements entered into April 18, 1995 and August 22, 1995, on
December 4, 1995 Yuma entered into a revised agreement with the Company. In
summary, the Company's remaining interest in Phoenix will, subject to receipt of
regulatory approvals and completion of the Mahogany-Yuma Agreement, be impacted
as follows:
i) Yuma will receive an additional 5% interest in Phoenix in exchange for
funded costs and the delivery of an independent bankable feasibility
study in respect of the Tuina Project;
ii) the Company would be required to sell a further 10% interest in
Phoenix to Yuma for an initial payment of $145,000, 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 the Company, 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 Tuina
Project, from a high of $609,000 where the initial capital costs are
less than $14,000,000 with graduating payments decreasing as capital
costs increase, and may be made, at Yuma's election, in cash or shares
of Yuma; and
iii) all participants will be responsible for contributing their share of
funding following completion and delivery of the Feasibility Study.
The failure of any participant to contribute its share of funding will
result in a dilution of that participant's interest in accordance with
a dilution formula. Once a participant's interest has been diluted to
10%, then the ownership interest will convert to a 10% net profits
interest.
Since April 13, 1995, Yuma has assumed all indebtedness of Phoenix, provided
funding for the preparation of the feasibility study, the costs of securing the
water rights for the Tuina Project and the ongoing costs of Phoenix. These
costs are partially recoverable by Yuma (the "Yuma Payments") from the Company
from the proceeds to be received from the sale of the 10% interest in Phoenix,
as noted in item (ii) above. Closing of the Mahogany-Yuma Agreement is subject
to regulatory approval, securing the water rights for the Tuina Project by April
30, 1996 (the "Water Rights Approval Date"), and the completion by Yuma of a
financing of at least U.S. $1,500,000 within 30 days of the Water Rights
Approval Date.
If the Water Rights Approval Date does not occur as contemplated, Yuma may elect
to terminate the Mahogany-Yuma Agreement and in such circumstances, the Company
must reimburse Yuma for the Yuma Payments. The reimbursement would be payable
by the Company from proceeds from the subsequent sale of its interest in the
Tuina Project, or commercial production commences on the Tuina Project. If the
Water Rights Approval Date occurs by
-20-
<PAGE>
May 31, 1996, and Yuma is unable to close the Yuma Purchase Agreement and
Mahogany agrees to an extension of the closing, then Yuma shall lose the rights
to reimbursement of the Yuma Payments.
The Company and Mahogany have an agreement in principle to conduct the
activities of the Tuina Project on a joint venture basis. The Company expects
to enter into a definitive joint venture and operating agreement with Yuma after
closing of the Mahogany-Yuma Agreement.
The restructuring completed with Mahogany allows the Company to retain a
substantial interest in the Tuina Project while eliminating the most significant
debt of the Company.
DISPOSITION OF INTERNATIONAL MAHOGANY CORP.
By way of a letter agreement ("Letter Agreement") dated August 6, 1993, the
Company agreed to sell its equity investment in Mahogany, which comprised an
approximate 25% equity and 60% voting interest in Mahogany. Consideration
received from the sale included: cash of $500,000; a non-interest bearing note
in the amount of $500,000 ("Baja Note"); and 650,000 common shares of Baja Gold,
Inc. ("Baja"), a Canadian publicly-traded precious metals exploration and
development company listed on the Toronto Stock Exchange, and valued, for
financial statement purposes, at $680,000, based on the August 6, 1993 closing
stock market price of Baja.
As a result of the Company selling its equity interest in Mahogany, Mahogany's
financial results were no longer consolidated with those of the Company after
the sale of Mahogany on August 6, 1993.
In addition, under the terms of the Letter Agreement, Mr. Anton R. Hendriksz and
Mr. Thomas L. Crom, previous Chairman of the Board and President of the Company,
respectively, agreed to terminate their existing employment agreements and to
provide consulting services to Mahogany and the Company for a 24-month period in
consideration for certain future cash payments. The termination and consulting
payments were to be shared equally by Mahogany and the Company. During 1993,
the Company incurred charges of $212,500 as its share of the termination and
consulting payments. As at December 31, 1994, $156,250 remained unpaid. During
1995, the Company issued 275,000 shares, at an ascribed value of $0.30 per
share, in settlement of the $156,250 due to the former officers, recording an
extraordinary gain of $73,750 on settlement.
RESULTS OF OPERATIONS
The Company incurred a loss of $922,032 ($0.04 per share) for the year ended
December 31, 1995, compared to losses of $2,071,147 ($0.09 per share) for 1994
and $6,271,619 ($0.27 per share) for 1993. There were no revenue, no depletion
and depreciation charges and no cost of sales for 1995 or 1994. The lack of
revenue, depletion and depreciation charges and cost of sales during 1995 and
1994 were due to the continuation of reclamation work at the Silver City Joint
Venture and the decision to suspend operations at the Tuina copper property in
Chile during 1993. The Company, for the year ended 1993, had revenue of
$1,409,836, depletion and depreciation costs of $504,415 and cost of sales of
$2,490,296.
On August 6, 1993, the Company sold its equity investment in Mahogany. The
results of Mahogany's operations are no longer included with those of the
Company's after its sale. There was a significant reduction in revenue in 1993,
compared to prior years, due to the winding-down of operations at the Silver
City Joint Venture and the decision to suspend operations at the Tuina mine.
During 1993 the Silver City operation produced 737 ounces of gold and gold
equivalent at Silver City which was sold at an average price of $318 per ounce.
Prior to suspending operations at Tuina, 2.0 million pounds of copper
precipitate was produced and sold at an average price of $0.58 per pound of
precipitates during 1993. The Company does not anticipate any revenue during
1996 from its current properties.
-21-
<PAGE>
During 1993, the Company incurred costs of $517,303 at the Silver City property
site. These costs included costs to produce the gold and gold equivalents for
the year as well as site reclamation costs. At the Tuina property, the Company
incurred costs of $1,972,993 to produce 2.0 million pounds of copper
precipitate.
General and administrative costs for 1995 was $842,547 compared to $862,735 in
1994 and $1,721,390 in 1993. During 1995 there was a reduction in the Company's
share of general and administrative costs relating to the Tuina Project,
primarily due to Yuma's funding of these costs; however, the reduced costs were
mainly offset by increased head office costs. As a result of the Company
selling its equity investment in Mahogany in 1993, general and administrative
costs for 1994 were reduced from prior years. With the change of Company
management in August 1993, new Company management took certain steps to reduce
ongoing Company general and administrative costs. Employment of head office
staff in San Francisco was terminated. The Company's head office space in San
Francisco was vacated and employment of staff in Santiago, Chile was reduced.
The above measures, including the agreement with respect to the departure of the
Company's previous Chairman and President, resulted in an aggregate charge to
Company earnings in 1993 of $512,933 and is reflected as restructuring costs for
in 1993.
The Company maintains a small exploration department which has assumed the
responsibility of reviewing and maintaining all Company properties. Costs for
maintaining the Company's title and rights to resource properties are also
included in exploration and property holding costs. During 1995, the Company
spent $60,390 on exploration and property holding costs compared with $432,425
in 1994 and $430,089 in 1993.
During 1995, the Company recorded a gain of $49,500 from the disposition of
certain of its mineral properties. The Company also settled its indebtedness to
Mahogany by reducing its ownership interest in Phoenix from 50% to 41%. The
disposition of the 9% interest in Phoenix has resulted in the elimination of the
Company's indebtedness to Mahogany and a reduction of the Tuina asset by
$797,481.
During 1995, Company management reviewed the carrying values of its remaining
mineral properties and determined to write off the remaining $71,397 carrying
value and reverse an accrual of $23,000 for anticipated property costs of its
Nine Mile property, resulting in a net write off of $48,397. During 1994,
Company management decided to terminate the Ashdown joint venture agreement. As
a result of this decision, a write-down of $197,850 was charged against earnings
in 1994. During 1993, properties with book values of $52,912 were abandoned,
with a corresponding charge to earnings. In addition, in 1994 the Company
recognized a $300,000 provision for diminution in value of the Nine Mile
property. No provision was recognized in 1993.
As a result of steadily declining cash balances and general reduction in
interest rates for funds on deposit, the Company has earned substantially lower
amounts of interest since 1993. Unless the Company sells for cash one of its
resource properties, the Company is not expected to earn any significant amounts
of interest in future years.
Although the Company has experienced a decline in its cash balances since 1993,
the Company has not relied on debt financing of any significance. Accordingly,
the Company has not incurred any large interest charges for the years ended 1995
to 1993.
During 1995, the Company realized $92,628 of gains from the sale of marketable
securities, proceeds from which have been utilized to meet the Company's
liquidity requirements. For the year ended 1994, the Company disposed of
marketable securities with a book value of $495,309 for proceeds of $665,803,
realizing a gain of $170,494. For the year ended 1993, the Company disposed of
marketable securities with a book value of $939,521 for proceeds of $927,639
realizing a loss of $11,882.
During 1995, the Company received $25,000 from the partial sale of the Company's
mill equipment in Montana. The proceeds were credited towards the remaining
scrap value. During 1994, the Company wrote-down the mill and
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<PAGE>
equipment to its scrap value of $28,103, charging earnings by $371,897. During
1993, Company management wrote down the value of this mill equipment by
$482,338.
On May 6, 1993, the Company sold all its shares in a subsidiary, Dragon Mining
Corp., realizing a gain of $729,547 on the sale.
On August 6, 1993, the Company agreed to sell its 25% equity-owned subsidiary,
Mahogany. Consideration received included cash of $500,000, a note for $500,000
and 650,000 common shares of Baja, valued at $680,000. The Company recognized a
loss of $2,928,595 in 1993 on the sale of Mahogany.
During 1993, the Company's former subsidiary, Mahogany, decided to dispose of
its oil and gas interests. Generally accepted accounting principles required
that the Company's oil and gas interests be reported separately as discontinued
operations in the Consolidated Statements of Operations. Effective June 3,
1993, Mahogany Minerals U.S. Inc., which held substantially all of the oil and
gas interests, was sold for $1,200,000 resulting in a loss of $144,778. During
1993, prior to its disposal, the oil and gas operations generated earnings of
$205,234. As a result the Company recorded, net of minority interest, total
earnings of $15,114 related to discontinued operations.
LIQUIDITY AND CAPITAL RESOURCES
For the past three years the Company has experienced substantial losses and has
continually sold non-essential Company assets to fund ongoing operations and
property commitments and development. Management, in its efforts to ensure
maximum fund availability, has reduced Company operating costs substantially and
has deferred payment of fees for their services. The Company believes it holds
properties with development potential. In order for the Company to develop its
properties or property interests, the Company requires funds to pay Company
overheads, pay property commitment costs and fund property development work.
Resource property development is both costly and time consuming. Development of
a property to a position of generating cash flow from underlying mineral sales
is normally measured in years, and there is no guarantee of the property's
ultimate financial success.
The Company requires funds for its future operations. Funding is traditionally
provided to corporations by way of funds from ongoing company operations, funds
from the issuance of company debt instruments, funds from company equity issues
and funds from the sale of Company assets.
With the suspension of operations at the Tuina mine, and continuing reclamation
work at Silver City, the Company does not have operations from which funds from
ongoing Company operations can be accumulated. With the Company's present asset
base, the Company is not able to generate funds from operations within the next
two years at a minimum, except to the extent that: (a) Tuina may be brought into
successful production in conjunction with the restructuring of the Tuina
Project; and (b) a new project and financing may be acquired with Company stock.
Throughout 1993, 1994 and a portion of 1995, the Company did not generate
sufficient funds to meet its proportionate share of costs and obligations on its
joint property activities with Mahogany, its ongoing property cost commitments
and its ongoing corporate expenses. During 1993, 1994 and 1995, a significant
portion of the Company's capital resources was funded by advances from Mahogany.
Approximately $1,215,000 and $358,258 was advanced to the Company by Mahogany
during 1993 and 1994 respectively, and a further $163,546 was advanced during
1995. In December 1993, Mahogany stated that it was reluctant to fund any
further Company capital requirements and in March 1994, demanded repayment of
amounts due. On April 12, 1995, the Company and Mahogany agreed to the
restructuring of the Tuina ownership to settle the Company's outstanding debt to
Mahogany. See Restructuring of Tuina Ownership.
During 1993, in response to its increasing financial pressures, the Company sold
its equity interest in Mahogany, receiving: cash of $500,000, which was utilized
to reduce some of the Company's liabilities and fund the Company's joint
-23-
<PAGE>
operation costs; a promissory note in the amount of $500,000 issued by Baja,
which was subsequently sold to Mahogany at face value in order to reduce the
Company's obligation to Mahogany and 650,000 common shares of Baja. During
1994, the Company sold 400,000 common shares of Baja for net proceeds of
$553,314. A further $112,489 net proceeds were raised from the sale of other
marketable securities. Sale proceeds were used to reduce Company liabilities
and help fund Company property cost commitments. During 1995, the Company sold
a further 10,000 common shares of Baja and other marketable securities for net
proceeds of $153,649. The proceeds were used to reduce company liabilities.
During 1994, pursuant to the issuance of promissory notes, the Company borrowed
a total of $201,337 ($283,820 Cdn.) from Baja, secured by 150,000 common shares
of Baja. The notes bear interest at 7% per annum. These funds were used to
meet a portion of the Tuina operating costs. During 1995, the Company was
advanced $74,532 (Cdn. $100,000) from a private corporation related to a
director of the Company. The Company subsequently issued a promissory note and
borrowed $97,167 (Cdn. $130,000) from a third party, secured by 90,000 common
shares of Baja. The promissory note bears interest at 8% per annum. The funds
from the promissory note were used to repay the advance from the related party
and reduce Company liabilities. Subsequent to December 31, 1995, the Company
sold 210,000 common shares of Baja for net proceeds of $338,576 (Cdn. $465,000).
Substantially all of the funds were then used to retire all of the promissory
notes and outstanding accrued interest, totalling $335,625.
In order to improve the Company's liquidity position during 1995 the Company
issued 1,455,835 shares, at an ascribed price of $0.30 per share, in settlement
of $510,500 of recorded indebtedness to former Company officers and related
companies, recording an extraordinary gain of $73,750. Current officers of the
Company have also agreed to defer repayment of indebtedness of $385,000,
comprising of $165,000 of unpaid 1994 salaries ("1994 Compensation") and
$220,000 of unpaid 1995 salaries ("1995 Compensation"), until January 2, 1997.
The 1994 Compensation will be settled with cash, if available, or the issuance
of shares of the Company, at an ascribed price of $0.30 per share. The officers
have agreed to receive only a 75% portion of the 1995 Compensation in cash and
the remaining 25% portion as deferred compensation. The cash portion will be
paid only upon the Company completing a financing and the deferred compensation
will be paid only 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 the Company's common stock, at a predetermined
price per share, at the officer's election.
The Company has reviewed its asset base and has identified those assets that are
considered to be non-essential for the Company's future growth, including small
Company properties in Montana with little, if any, resource potential. In order
for the Company to meet its current operating obligations and property
commitments, the Company is required to sell all non-essential Company assets.
Company management is, therefore, reviewing all other resource properties, and
may be required to sell certain of them that do not meet its investment
criteria. Although the Company has received expressions of interest in some of
its resource properties, it is not currently negotiating with any third party
for the sale of any of its resource properties.
At December 31, 1995 the Company had a working capital deficiency of $288,906, a
decrease of $201,976 from its working capital deficiency of $490,882 at December
31, 1994.
The Company reports a use of funds of $742,073 from operating activities for the
year ended December 31, 1995. This compares to a use of funds of $895,353 and
$2,816,949 for 1994 and 1993, respectively.
During the year ended December 31, 1995, the Company generated cash of $389,637
from its investing activities. The Company received $153,649 from the net sale
of its marketable securities, $62,822 and $93,403 from the sale of mineral
properties and equipment, respectively and $91,987 in net property payments.
During 1994, the Company was provided cash of $334,642 from investment
activities. The Company received net proceeds of $665,803 from the sale of its
marketable securities. The Company used $300,017 in the exploration of its
mineral properties. An additional $31,144
-24-
<PAGE>
was used to purchase equipment. During 1993, the Company was provided cash of
$1,587,023 from investment activities. The Company received cash of $500,000
from the sale of its interest in Mahogany, $927,639 from the net sale of
marketable securities and investments, $400,000 from the sale of its oil and gas
operations and $199,178 in property payments and foreign tax recoveries. The
Company used $46,249 to acquire equipment, $300,091 to acquire marketable
securities and at the time of disposition of Mahogany, Mahogany had cash of
$93,439 which was no longer reflected in the consolidated results of the
Company.
For the year ended December 31, 1995, the Company was provided funds of $435,997
from financing activities compared to $559,595 provided in 1994 and $195,146
provided in 1993. In 1995, the Company issued $200,000 common stock pursuant to
a private placement of 1,000,000 shares, received further advances of $163,546
from Mahogany and increased its promissory notes by $107,451. The Company
advanced $35,000 in contemplation of its acquisition of Tamarine Ventures Ltd.
In 1994, financing activities comprised of $358,258 in net advances by Mahogany
and the issuance of $201,337 in promissory notes to Baja. For the year ended
December 31, 1993, subsequent to the sale of Mahogany, the Company received
funds of $195,146 in advances from Mahogany.
The Company conducts its current mining and exploration activities in the United
States, Chile and Bolivia. As a result, the Company is subject to certain
risks, including expropriation, political instability, varying degrees of
inflation and other uncertainties.
FUTURE OPERATIONS
In order to meet its obligations for operations and property agreement
commitments, the Company is required to sell its non-essential assets.
Remaining marketable securities will be sold and properties with little or no
potential will be disposed. If the Company does not have the financial ability
to develop a project on its own, future development may be done in conjunction
with other parties.
Company management is currently reviewing all resource properties with the view
to identifying those properties that provide the most potential for future
growth of the Company. Resource properties that do not meet management's
investment criteria may be disposed. The Company owns various patented mineral
claims. The Company is reviewing its current ownership of its various patent
mining claims as to their real estate value both in the Tintic District, Utah
and the Boulder Mountains in Montana. Both of these areas are located in
expanding resort developments and in the Boulder Mountain area the real estate
value is approaching $200 - $300 an acre. The Tintic properties are located on
the west side of Utah Lake and this area has significant potential for resort
development as the east side of Utah Lake is fully developed.
The Tuina Project will remain suspended pending completion of the Mahogany-Yuma
Agreement. It is expected that once this transaction closes Yuma will proceed
with bringing the Tuina Project into production with the construction of an
SX/EW plant facility. The Company is responsible for contributing its share of
funding, of which any failure will result in a dilution of the Company's
interest.
In addition, Company management is aggressively seeking joint ventures and/or
acquisitions and mergers and related financing to acquire gold and other natural
resource properties that fit the Company's criteria. These criteria are
technical/economic likelihood of success, sufficiently advanced exploration or
development status, and proximity of cash flow, if possible. Management will
review projects in North and South America, Africa and Asia for attractive gold
and other natural resource properties.
-25-
<PAGE>
PROPOSED SHARE EXCHANGE WITH TAMARINE VENTURES LTD.
On November 17, 1995, the Company executed an Agreement and Plan of Share
Exchange (the "Agreement") with Tamarine Ventures Ltd., a company incorporated
under the laws of British Columbia, Canada ("Tamarine"). The Agreement provides
for the issuance, at closing, of one post-reverse stock split share of Common
Stock of the Company in exchange for each four common shares of Tamarine,
thereby making Tamarine a wholly-owned subsidiary of the Company (the "Share
Exchange"). At the closing of the Share Exchange, the Company would issue
2,000,000 post-reverse split shares of its Common Stock to the shareholders of
Tamarine. Closing of the Share Exchange is subject to a number of conditions
including regulatory acceptance, approval by the shareholders of the Company and
satisfactory results of due diligence investigations conducted by the Company
and Tamarine.
The Agreement contemplates that Tamarine will acquire other businesses and/or
companies using shares of the Company's Common Stock and asset based financing.
On November 24, 1995, Tamarine executed a Business Sale Agreement (the "Cougar
Acquisition") with Atlay Cat Sales and Services Pty. Ltd. ("Atlay") of
Queensland, Australia, to acquire its business, known as Cougar Catamarans.
Cougar Catamarans manufactures and sells boats ranging in size from 7.5 to 35
meters, which include passenger ferries, pleasure boats, scenic tour boats,
fishing boats, dive boats, and patrol boats. Sales are made to countries in the
Pacific Rim: Japan, Hong Kong, China, Singapore, New Zealand, the United States,
Papua New Guinea, Tahid, Noumea, and the Maldives. The purchase price is
$2,500,000 plus the value at closing of inventory and work in process. Of the
purchase price, $500,000 is to be made in shares of the Company's Common Stock.
Subsequent to December 31, 1995, the Company issued 1,250,000 shares to Atlay as
partial consideration of the Cougar Acquisition. These shares are held in
escrow. Subsequent to the issuance of the shares, the Cougar Acquisition was
not completed pursuant to the agreement. Tamarine and Atlay are in negotiations
to revise and extend the Cougar Acquisition. There can be no assurance that the
companies will be able to reach an agreement in which case these shares will be
returned to the Company and held in treasury.
The Company is acquiring Tamarine in order to achieve near term operating cash
flow, long term growth and access to opportunities in South East Asia. Tamarine
management has expertise and relationships in the fast ferry industry and in the
emerging economies of South East Asia. Entrance into the new industry of light
weight aluminum fast ferries (for passengers and also for cargo) positions the
Company in an expanding multi-billion dollar infrastructure industry with focus
on the burgeoning economies of South East Asia, which are also producing major
new mineral discoveries for the mining industry.
IMPACT OF SFAS NO. 115
Effective January 1, 1994, the Company adopted SFAS No. 115 "Accounting for
Certain Investments in Debt and Equity Securities", SFAS No. 115 required the
Company to account for its marketable securities at market value. Unrealized
gains and losses are included as a separate component of shareholders' equity as
a marketable securities valuation adjustment. Previously, marketable securities
were carried at the lower of their aggregate cost or market value and the
unrealized losses net of unrealized gains were included in the determination of
loss for the year.
IMPACT OF SFAS NO. 109
Effective January 1, 1993, the Company adopted SFAS No. 109 "Accounting for
Income Taxes". SFAS No. 109 requires a change from the deferred method to the
liability method of accounting for income taxes. Under the liability method,
deferred income taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax laws and rates applicable to
future years to differences between the financial statement carrying amounts and
the
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<PAGE>
tax bases of existing assets and liabilities. Under this new standard, the
effect on deferred taxes of a change in tax rates is recognized in income in the
period that includes the enactment date. Under the deferred method, deferred
taxes were recognized using the tax rate applicable to the year of the
calculation and were not adjusted for subsequent changes in tax rates. The
adoption of SFAS No. 109 did not have any impact on the consolidated financial
statements.
IMPACT OF INFLATION
North Lily will be affected by inflation because market value of its potential
products (gold and silver) tends to fluctuate with inflation. Other major costs
should not increase at a rate in excess of inflation.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The unaudited consolidated financial statements are filed under this Item
beginning on page F-1 and the financial statements schedules required under
Regulation S-X are filed pursuant to Item 14 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
--------------------------------------------------
Not applicable.
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<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
Information as to Directors for Item 10 is incorporated by reference to the
material appearing under the caption "Election of Directors" in North Lily's
Proxy Statement.
For information as to Executive Officers, see Part I. The executive officers of
the registrant are listed below:
EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------
<TABLE>
<CAPTION>
Executive Officer
Name Age Since Position with the Registrant
- ---- --- ----- ----------------------------
<S> <C> <C> <C>
Stephen E. Flechner 53 1994 President and Chief Executive Officer
and Director
W. Gene Webb 57 1994 Executive Vice-President, Corporate
Secretary and Director
John R. Twohig 43 1996 Vice-President, Corporate Development
Nick DeMare 41 1994 Principal Financial and Accounting
Officer and Treasurer
</TABLE>
No family relationships exist between the executive officers of the registrant.
No arrangements or understandings exist between any executive officer and any
other person appointed by which the executive officer was elected or appointed.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
Information for Item 11 is incorporated by reference to the material appearing
under the captions "Election of Directors" and "Executive Compensation" in North
Lily's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
Information for Item 12 is incorporated by reference to the material appearing
under the captions "Voting Securities", "Shareholdings of Management" and
"Shareholdings of Certain Persons," in North Lily's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
Information for Item 13 is incorporated by reference to the material appearing
under the caption "Transactions with Management" in North Lily's Proxy
Statement.
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<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
A) The following documents are filed as part of this report:
1. Financial Statements:
Report of Independent Accountants, (April 17, 1996)
Consolidated Balance Sheets, (December 31, 1995 and 1994)
Consolidated Statements of Operations, (December 31, 1995, 1994 and
1993)
Consolidated Statements of Shareholders' Equity, (December 31, 1995,
1994 and 1993)
Consolidated Statements of Cash Flows, (December 31, 1995, 1994 and
1993)
Notes to Consolidated Financial Statements
2. Financial Statements Schedules:
Schedule VIII - Valuation and Qualifying Accounts
All other schedules have been omitted because they are not required, are
inapplicable, or the information is otherwise included in the financial
statements or notes thereto.
3. Exhibits:
<TABLE>
<CAPTION>
Consecutive
Regulation Form lO-K
10-K Number Exhibit Page No.
----------- ------- --------
<C> <S> <C>
2.1 Agreement and Plan of Share Exchange
with Tamarine Ventures Ltd.
3.1 Articles of Incorporation, as amended(1) N/A
3.2 Bylaws (2) N/A
10.1 Tuina Agreement (3) N/A
10.2 Employment Agreement (3) N/A
10.3 Amended Stock Option Agreement (3) N/A
10.4 Letter Agreement dated August 6, 1993 (4) N/A
10.5 Baja Gold Inc., Loan Documents (5)
10.6 W. Gene Webb Employment Agreement
10.7 Stephen E. Flechner Employment Agreement
27.0 Financial Data Schedule
</TABLE>
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<PAGE>
Footnotes:
(1) Incorporated by reference to the Exhibits to North Lily's Form 10-K for the
fiscal year ended December 31, 1987.
(2) Incorporated by reference to the Exhibits to North Lily's Form 10-K for the
fiscal year ended December 31, 1983.
(3) Incorporated by reference to the Exhibits to North Lily's Form 10-K for the
fiscal year ended December 31, 1991.
(4) Incorporated by reference to the Exhibits to North Lily's Form 8-K dated
August 6, 1993.
(5) Incorporated by reference to the Exhibits to North Lily's Form 10-K/A for
the fiscal year ended December 31, 1994.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
April 17, 1996 By: /s/Stephen E. Flechner
------------------------------------------
Stephen E. Flechner
Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
April 17, 1996 By: /s/Stephen E. Flechner
------------------------------------------
Stephen E. Flechner
Chief Executive Officer, President
and Director
April 17, 1996 By: /s/W. Gene Webb
------------------------------------------
W. Gene Webb
Executive Vice-President, Corporate
Secretary and Director
April 17, 1996 By: /s/Nick DeMare
-----------------------------------------
Nick DeMare
Principal Financial and
Accounting Officer and Treasurer
April 17, 1996 By: /s/Theodore E. Loud
-----------------------------------------
Theodore E. Loud
Director
April 17, 1996 By: /s/John R. Twohig
-----------------------------------------
John R. Twohig
Vice-President Corporate Development
and Director
April 17, 1996 By: /s/Nigel Horsley
-----------------------------------------
Nigel Horsley
Director
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<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
North Lily Mining Company:
We have audited the consolidated financial statements and the financial
statement schedules of North Lily Mining Company and Subsidiaries listed in Item
14(a) of this Form 1O-K. These financial statements and financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of North Lily Mining
Company and Subsidiaries as of December 31, 1995 and 1994, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1995 in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedules
referred to above, when considered in relation to the basic financial statements
taken as a whole, present fairly, in all material respects, the information
required to be included therein.
These financial statements have been prepared on the assumption that the Company
will be able to carry on as a going concern. As discussed in note 1 to the
consolidated financial statements, the Company has a working capital deficiency
at December 31, 1995, losses from continuing operations for each of the three
years ended December 31, 1995, and no operating cash flow to meet ongoing
obligations. In addition there are certain potential liabilities which may have
an adverse effect on the Company (see note 13). These factors raise substantial
doubt about the Company's ability to continue as a going concern. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty. 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.
COOPERS & LYBRAND L.L.P.
Oakland, California
April 17, 1996
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, DECEMBER 31, 1995 AND 1994
_______________
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 122,515 $ 38,954
Marketable securities 448,800 299,874
Accounts receivable 44,687 49,201
Inventory 43,207 101,750
------------ ------------
Total current assets 659,209 489,779
Note receivable 35,000 -
Plant and equipment, net 278,111 461,185
Mineral properties, net 3,121,943 4,048,059
Other assets 107,457 106,025
------------ ------------
Total assets $ 4,201,720 $ 5,105,048
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 381,326 $ 402,955
Accrued and other liabilities 38,000 68,000
Reclamation liabilities 220,001 152,119
Notes payable 308,788 201,337
Due to former officers - 156,250
------------ ------------
Total current liabilities 948,115 980,661
Due to International Mahogany Corp. - 648,973
Indebtedness to be settled with shares - 354,250
Due to officers 385,000 165,000
------------ ------------
Total liabilities 1,333,115 2,148,884
------------ ------------
Commitments and contingencies and going concern (Notes 1 and 13)
Shareholders' equity:
Common stock, $0.10 par value; authorized 30,000,000 shares;
issued 25,946,677 and 23,420,842 shares as of
December 31, 1995 and 1994, respectively 2,594,667 2,342,084
Additional paid-in capital 48,929,549 48,545,382
Accumulated deficit (48,835,939) (47,913,907)
Treasury stock, at cost, 144,830 shares
as of December 31, 1995 and 1994 (17,395) (17,395)
Marketable securities valuation adjustment 197,723 -
------------ ------------
Total shareholders' equity 2,868,605 2,956,164
------------ ------------
Total liabilities and shareholders' equity $ 4,201,720 $ 5,105,048
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
_______________
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ -----------
<S> <C> <C> <C>
Sales revenue $ - $ - $ 1,409,836
Cost of sales - - 2,490,296
Depletion and depreciation - - 504,415
----------- ----------- -----------
Gross loss - - (1,584,875)
Operating expenses:
General and administrative 842,547 862,735 1,721,390
Exploration and property carrying costs 60,390 432,425 430,089
Abandonment of mineral properties 48,397 197,850 52,912
Provision for diminution in value of mineral properties - 300,000 -
----------- ----------- -----------
Operating loss (951,334) (1,793,010) (3,789,266)
Other income (expenses):
Interest income 3,310 1,275 48,895
Interest expense (17,242) - (36,233)
Net realized gain (loss) on sale of marketable securities 92,628 170,494 (11,882)
Gain on disposition of mineral properties 49,500 - -
Write-down of mill equipment - (371,897) (664,515)
Gain on sale of Dragon Mining Corp. - - 729,547
Loss on sale of International Mahogany Corp. - - (2,928,595)
Restructuring costs - - (512,933)
Other, net (172,644) (78,009) 275,626
----------- ----------- -----------
Loss from continuing operations, before
minority interest in loss of subsidiaries
and extraordinary item (995,782) (2,071,147) (6,889,356)
Minority interest in loss of subsidiaries - - 602,623
----------- ----------- -----------
Loss from continuing operations before extraordinary item (995,782) (2,071,147) (6,286,733)
Earnings from discontinued operations - - 15,114
----------- ----------- -----------
Loss before extraordinary item (995,782) (2,071,147) (6,271,619)
Extraordinary item - Gain on settlement
of amounts due to former officers 73,750 - -
----------- ----------- -----------
Net loss $ (922,032) $(2,071,147) $(6,271,619)
=========== =========== ===========
Net loss per common share:
Loss from continuing operations before extraordinary item $ (0.04) $ (0.09) $(0.27)
=========== =========== ===========
Loss before extraordinary item $ (0.04) $ (0.09) $(0.27)
=========== =========== ===========
Net loss $ (0.04) $ (0.09) $(0.27)
=========== =========== ===========
Weighted average common shares outstanding 23,425,837 23,276,012 23,312,343
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
_______________
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In Accumulated Treasury
---------------------------
Shares Amount Capital Deficit Stock
------------ ------------ ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992 23,234,842 $ 2,323,484 $ 48,461,682 $ (39,571,141) $ (17,380)
Net loss, year ended December 31, 1993 - - - (6,271,619) -
Common stock issued for services rendered 186,000 18,600 83,700 - -
Common stock repurchased - - - - (15)
Company stock sold by subsidiary - - - - -
Accumulated foreign currency
translation adjustment - - - - -
------------ ------------ ------------ ------------- -----------
Balance, December 31, 1993 23,420,842 2,342,084 48,545,382 (45,842,760) (17,395)
Net loss, year ended December 31, 1994 - - - (2,071,147) -
------------ ------------ ------------ ------------- -----------
Balance, December 31, 1994 23,420,842 2,342,084 48,545,382 (47,913,907) (17,395)
Net loss, year ended December 31, 1995 - - - (922,032) -
Common stock issued for services rendered 70,000 7,000 7,000 - -
Common stock issued on settlement of debt 1,455,835 145,583 291,167 - -
Company stock issued by private placement 1,000,000 100,000 100,000 - -
Share issue costs - - (14,000) - -
Marketable securities valuation adjustment - - - - -
------------ ------------ ------------ ------------- -----------
Balance, December 31, 1995 25,946,677 $ 2,594,667 $ 48,929,549 $ (48,835,939) $ (17,395)
============ ============ ============ ============= ===========
<CAPTION>
Accumulated
Company Marketable Foreign
Stock Securities Currency
Held by Valuation Translation
Subsidiaries Adjustment Adjustment Total
------------ ---------- ----------- ------------
<S> <C> <C> <C> <C>
Balance, December 31, 1992 $ (5,239,477) $ - $ (747,479) $ 5,209,689
Net loss, year ended December 31, 1993 - - - (6,271,619)
Common stock issued for services rendered - - - 102,300
Common stock repurchased - - - (15)
Company stock sold by subsidiary 5,239,477 - - 5,239,477
Accumulated foreign currency
translation adjustment - - 747,479 747,479
------------ ---------- ----------- ------------
Balance, December 31, 1993 - - - 5,027,311
Net loss, year ended December 31, 1994 - - - (2,071,147)
------------ ---------- ----------- ------------
Balance, December 31, 1994 - - - 2,956,164
Net loss, year ended December 31, 1995 - - - (922,032)
Common stock issued for services rendered - - - 14,000
Common stock issued on settlement of debt - - - 436,750
Company stock issued by private placement - - - 200,000
Share issue costs - - - (14,000)
Marketable securities valuation adjustment - 197,723 - 197,723
------------ ---------- ----------- ------------
Balance, December 31, 1995 $ - $ 197,723 $ - $ 2,868,605
============ ========== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
___________________
<TABLE>
<CAPTION>
1995 1994 1993
------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (922,032) $ (2,071,147) $ (6,271,619)
------------- -------------- --------------
Adjustments to reconcile net loss to net cash
provided from (used for) operating activities:
Depletion and depreciation 49,562 129,734 504,415
Provision for diminution in value of mineral properties - 300,000 -
Abandonment of mineral properties 48,397 197,850 52,912
Minority interest in loss of subsidiaries - - (557,281)
Net realized loss (gain) on sale of marketable
securities and investments (92,628) (170,494) 11,882
Gain on foreign currency transaction - - (534,727)
Gain on disposition of mineral properties (49,500) - -
Write-down of mill equipment - 371,897 664,515
Gain on sale of Dragon Mining Corp. - - (729,547)
Loss on sale of International Mahogany Corp. - - 2,928,595
Issuance of common stock for services rendered - - 102,300
Indebtedness to be settled with shares - 354,250 -
Decrease (increase) in accounts receivables 4,514 12,995 (38,914)
Decrease in inventory 58,543 49,994 73,315
Decrease (increase) in other assets (1,432) 22,009 144,668
Increase (decrease) in accounts payable (21,629) 128,879 405,405
Increase (decrease) in accrued and other liabilities (30,000) (288,439) 101,644
Increase (decrease) in reclamation liabilities 67,882 (97,881) 171,411
Increase in due to former officers - - 156,250
Increase in due to officers 220,000 165,000 -
Decrease in taxes payable - - (2,173)
Other items (73,750) - -
------------- -------------- --------------
Total adjustments 179,959 1,175,794 3,454,670
------------- -------------- --------------
Net cash used for operating activities (742,073) (895,353) (2,816,949)
------------- -------------- --------------
Cash flows from investing activities:
Acquisition and exploration of mineral properties,
net of option payments and foreign taxes received 91,987 (300,017) 199,178
Acquisition of equipment - (31,144) (46,249)
Proceeds received on sale of equipment 93,403 - -
Proceeds from sale of marketable securities and
investments 153,649 665,803 927,639
Purchase of marketable securities and investments (12,224) - (300,091)
Proceeds from sale of mineral properties 62,822 - -
Proceeds from sale of Company's investment in
subsidiary's stock - - 500,000
Less: Cash disposed on sale of subsidiary - - (93,439)
Proceeds from sale of discontinued operations - - 400,000
Purchase of treasury stock - - (15)
------------- -------------- --------------
Net cash provided from investing activities 389,637 334,642 1,587,023
------------- -------------- --------------
Cash flows from financing activities:
Notes payable 107,451 201,337 -
Advances from International Mahogany Corp. 163,546 358,258 195,146
Proceeds from issuance of common stock 200,000 - -
Note receivable (35,000) - -
------------- -------------- --------------
Net cash provided from financing activities 435,997 559,595 195,146
------------- -------------- --------------
Net increase (decrease) in cash and cash equivalents 83,561 (1,116) (1,034,780)
Cash and cash equivalents, beginning of year 38,954 40,070 1,074,850
------------- -------------- --------------
Cash and cash equivalents, end of year $ 122,515 $ 38,954 $ 40,070
============= ============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION
Cash paid during the year for:
Interest $ - $ 2,611 $ 36,233
============= ============== ==============
Income taxes $ - $ - $ -
============= ============== ==============
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES (SEE NOTE
14)
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
___________________
1. GOING CONCERN:
During 1995, 1994, and 1993 the Company incurred net losses of $922,032,
$2,071,147 and $6,271,619, respectively and at December 31, 1995 has a
working capital deficiency of $288,906. During 1995 and 1994 the Company
used cash in operating activities of $742,073 and $895,353, respectively.
During 1993 the Company ceased operations at its Silver City mine and
suspended mining operations at its Tuina mine (Note 8). 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 financing to fund 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 the necessary financing to continue in
operations or meet its liabilities as they fall due or be successful in
resolving its contingent liabilities (note 13). Should the Company be
unable to realize on its assets and discharge its liabilities in the normal
course of business, the Company may not be able to continue in operations
and the net realizable value of its assets may be materially less than the
amounts recorded on the consolidated balance sheets.
See also Notes 5(a), 6 and 16.
2. NATURE OF OPERATIONS:
The Company is engaged in mineral activities, including exploration,
extraction, processing and reclamation. The Company's principal assets are
its copper mine, located in Chile, and its mineral properties, located in
the United States.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of North Lily
Mining Company, a Utah corporation, and all of its subsidiaries (the
"Company"). The Company's significant subsidiary is Minera Northern
Resources, S.A. ("Minera") (a 100% owned Chilean corporation). All
significant intercompany transactions, accounts, and investments have been
eliminated. See also Note 5.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the
reporting period. Actual results could differ from those estimated.
CASH EQUIVALENTS:
The Company defines cash equivalents as all short-term, highly liquid
investments with original maturity dates less than 90 days.
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
___________________
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
MARKETABLE SECURITIES:
Current marketable equity securities are carried at market value.
Unrealized losses and gains are included as a separate component of
shareholders' equity. Net realized gains and losses on security
transactions are determined on the specific identification cost basis and
are included in the determination of loss for the year.
INVENTORY:
Finished products are recorded at the lower of first-in, first-out cost or
market. In-process heap leach ore, which principally includes unleached ore
placed on heap leach pads, is valued at the lower of moving average
production cost or net realizable value. Costs are removed from inventory
on a first-in, first-out basis. Major mining and milling supplies are
stated at the lower of first-in, first-out cost or market.
PLANT AND EQUIPMENT:
Plant and equipment is carried at cost net of write-downs. Mill and
equipment are depreciated using the straight-line method over their
estimated useful lives of 5 to 15 years or the units-of-production method
based on estimated tons of ore reserves if the equipment is located at a
producing property with a shorter economic life. Mining equipment is being
depreciated using the straight-line method over their estimated useful
lives of 3 to 15 years or the units-of-production method based on estimated
tons of ore reserves if the equipment is located at a producing property
with a shorter economic life. Office equipment and fixtures are being
depreciated using the straight-line method over their estimated useful
lives of 3 to 10 years. When such assets are sold or otherwise disposed of,
the costs and accumulated depreciation are removed from the accounts, and
any resulting gains or losses are charged to operations. Carrying values of
plant and equipment are reviewed on a regular basis and, when necessary,
are written down to their estimated recoverable amount.
MINERAL PROPERTIES:
Direct costs related to the acquisition, exploration and development of
mineral properties held or controlled by the Company are deferred on an
individual property basis until viability of a property is determined.
General exploration costs are expensed as incurred. Management of the
Company periodically reviews the recoverability of the capitalized mineral
properties and mining equipment. Management's calculation of proven and
probable reserves is based on engineering and geological estimates and
financial estimates including mineral prices and operating costs. The
Company depreciates its assets and accrues for reclamation on a units of
production basis at each mine site over proven and probable reserves.
Changes in the geological and engineering interpretation of the Company's
ore bodies, mineral price and operating costs may change the Company's
estimate of proven and probable reserves. It is reasonably possible that
the Company's estimate of proven and probable reserves will change in the
near term resulting in additional charges for depreciation and reclamation
in future reporting periods. When it is determined that a project or
property will be abandoned or its carrying value has been impaired, a
provision is made for any expected loss on the project or property.
Investments in joint ventures are proportionately consolidated.
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
___________________
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
FOREIGN CURRENCY TRANSLATION:
Results of operations for foreign subsidiaries, whose functional currency
is other than the U.S. dollar, are translated using the average exchange
rates during the period, while assets and liabilities are translated into
U.S. dollars using current rates. Resulting translation adjustments are
recorded in currency translation adjustments in shareholders' equity. For
foreign subsidiaries whose functional currency is the U.S. dollar, currency
gains and losses resulting from translation and transactions are determined
using a combination of current and historical rates and are included in the
results of operations.
REVENUE FROM GOLD AND SILVER BULLION/COPPER PRECIPITATE SALES:
Revenue from gold and silver bullion sales is recorded at the time of
shipment to the refiner if sold within a normal trading cycle. The price of
each shipment is based generally on the closing London bullion price on the
date of shipment or at the price negotiated under forward sales contracts.
Subsequent adjustments for actual sales prices and for quantity variances
based on refiner weights and assays are recorded when determined.
Revenue from copper precipitate sales is recognized at the point of
transferring the copper precipitate to the buyer's warehouse in
Antofagasta, Chile. The value of each shipment is based on the average New
York Commodity Exchange (Comex) High Grade first position price for the
month of shipment. Subsequent adjustments for actual sales prices and for
quantity variances based on refiner weights and assays are recorded when
determined.
RECLAMATION COSTS:
All of the Company's operations are subject to reclamation, site
restoration and closure requirements. Post-closure reclamation, site
restoration costs and closure costs for each producing mine are charged to
operations over the expected life of the mine using the units of production
method. Current expenditures relating to ongoing environmental and
reclamation programs are expensed as incurred. The Company calculates its
estimate of the ultimate reclamation liability based on current laws and
regulations and the expected future costs to be incurred in reclaiming,
restoring and closing its operating mine sites. It is reasonably possible
that the Company's estimate of its ultimate reclamation liability will
increase in the near term due to possible changes in laws and regulations
and changes in cost estimates.
INCOME TAXES:
Effective January 1, 1993, the Company adopted SFAS No. 109 "Accounting for
Income Taxes". SFAS No. 109 requires a change from the deferred method to
the liability method of accounting for income taxes. Under the liability
method, deferred income taxes are recognized for the tax consequences of
"temporary differences" by applying enacted statutory tax laws and rates
applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities.
Under this standard, the effect on deferred taxes of a change in tax rates
is recognized in income in the period that includes the enactment date. The
adoption of SFAS No. 109 did not have any impact on the consolidated
financial statements.
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
___________________
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
CONCENTRATION OF CREDIT RISK:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of cash and cash equivalents,
investments in marketable securities and receivables. The Company places
its short-term cash investments with high credit quality financial
institutions and, by policy, limits the amount of credit exposure to any
one financial institution. Generally, these investments mature within 90
days and therefore are subject to minimal risk. The Company sells products
on credit and generally does not require collateral.
LOSS PER COMMON SHARE:
Loss per common share is calculated using the weighted average number of
shares outstanding during the year. Loss per common share computations for
each of the three years presented do not include the effect of outstanding
stock options, as their effect is antidilutive.
4. DISCONTINUED OPERATIONS:
Effective June 3, 1993, the Company's former subsidiary, International
Mahogany Corp. ("Mahogany"), sold its wholly owned subsidiary, Mahogany
Minerals U.S. Inc. ("Mahogany U.S."), for $1,200,000. Mahogany U.S. held
substantially all of Mahogany's oil and gas interests. The sale of Mahogany
U.S. resulted in a loss of $144,778 in 1993.
The results of the oil and gas interests for 1993 have been reported
separately as discontinued operations in the Consolidated Statements of
Operations. Summarized results of the oil and gas operations for 1993 are
as follows:
<TABLE>
<S> <C>
Revenues $ 522,717
---------
Production costs 76,566
Depletion and amortization 169,118
Other expenses 56,214
Other items 15,585
---------
317,483
---------
Earnings from discontinued
operations before loss on sale of Mahogany U.S. 205,234
Loss on sale of Mahogany U.S. (144,778)
---------
Earnings from discontinued operations 60,456
Minority interest relating to discontinued operations (45,342)
---------
Total earnings related to discontinued operations $ 15,114
=========
</TABLE>
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
___________________
5. DISPOSITION OF INTERESTS IN SUBSIDIARY COMPANIES:
A) COMPANIA MINERA PHOENIX S.A.
On April 12, 1995, the Company and Mahogany agreed to a restructuring
of the ownership interest of the Tuina project. In settlement of the
Company's debt to Mahogany as at March 28, 1995, the Company's
ownership interest in Compania Minera Phoenix S.A. ("Phoenix") was
reduced from 50% to 41%. The disposition of the 9% interest in Phoenix
has resulted in the elimination of the Company's indebtedness to
Mahogany and a reduction of the Tuina asset by $797,481.
On April 14, 1995, and extended and revised on several occasions,
Mahogany agreed to sell its 59% interest in Phoenix to Yuma Gold Mines
Limited ("Yuma") (the "Mahogany-Yuma Agreement").
On April 18, 1995, and extended and revised on several occasions, the
Company also entered into an agreement with respect to Phoenix.
Pursuant to the terms of the agreement, subject to regulatory
approvals and completion of the Mahogany-Yuma Agreement, the Company's
remaining interest in Phoenix will be impacted, as follows:
i) Yuma will receive an additional 5% interest in Phoenix in
exchange for funded costs and the delivery of an independent
bankable feasibility study in respect of the Tuina project;
ii) the Company will sell a further 10% interest in Phoenix to
Yuma for an initial payment of $145,000, 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 the Company, 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 Tuina project, from a high of $609,000
where the initial capital costs are less than $14,000,000
with graduating payments decreasing as capital costs
increase, and may be made, at Yuma's election, in cash or
shares of Yuma; and
iii) all participants will be responsible for contributing their
share of funding following completion and delivery of the
Feasibility Study. The failure of any participant to
contribute its share of funding will result in a dilution of
that participant's interest in accordance with a dilution
formula. Once a participant's interest has been diluted to
10%, the ownership interest will convert to a 10% net profits
interest.
Closing of the Mahogany-Yuma Agreement is subject to regulatory
approval, securing the water rights for the Tuina Project by April 30,
1996 (the "Water Rights Approval Date"), and the completion by Yuma of
a financing of at least U.S. $1,500,000 within 30 days of the Water
Rights Approval Date.
If the Water Rights Approval Date does not occur as contemplated, Yuma
may elect to terminate the Mahogany-Yuma Agreement and in such
circumstances, the Company must reimburse Yuma for the Yuma Payments.
The reimbursement would be payable by the Company from proceeds from
the subsequent sale of its interest in the Tuina Project, or
commercial production commences on the Tuina Project. If the Water
Rights Approval Date occurs by April 30, 1996, and Yuma is unable to
close the Yuma Purchase Agreement and Mahogany agrees to an extension
of the closing, then Yuma shall lose the rights to reimbursement of
the Yuma Payments.
The Company and Mahogany have an agreement in principle to conduct the
activities of the Tuina project on a joint venture basis. The Company
expects to enter into a definitive joint venture and operating
agreement with Yuma after closing of the Mahogany-Yuma Agreement.
<PAGE>
NORTH LILY MININIG COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
___________________
5. DISPOSITION OF INTERESTS IN SUBSIDIARY COMPANIES, CONTINUED:
B) INTERNATIONAL MAHOGANY CORP.
During 1993, the Company sold to Baja Gold, Inc. ("Baja") the
Company's equity investment in Mahogany, consisting of 4,114,958 Class
B subordinate voting shares and 150,000 Class A common shares of
Mahogany (collectively the "Mahogany Shares"), representing a 25.2%
equity and 60.1% voting control interest. Consideration received from
Baja included: cash of $500,000; a note, bearing interest at 8% per
annum, issued by Baja in the amount of $500,000; and 650,000 common
shares of Baja, having a fair market value of $680,000 at the date of
sale of the Mahogany Shares. See also Note 12.
As a result of the Company selling its equity interest in Mahogany,
the Company's consolidated financial statements include the results of
Mahogany's operations up to the date of disposition. During 1993, the
Company recognized a loss on the sale of Mahogany of $2,928,595.
The disposed net assets of Mahogany, and the computation of the loss
on sale in 1993 are as follows:
<TABLE>
<CAPTION>
Net Assets of Mahogany
-----------------------
<S> <C>
Current assets $ 1,531,804
Long-term assets 12,857,716
Liabilities (1,158,485)
Minority interest (14,964,002)
Company stock held 5,239,477
Accumulated foreign currency translation adjustment 1,102,085
------------
$ 4,608,595
============
</TABLE>
The net asset value of Mahogany reflects the Company's original
investment in Mahogany which is adjusted by the Company's
proportionate share of Mahogany's operating results (increased for
income and decreased for losses).
<TABLE>
<CAPTION>
Computation of Loss on Sale
---------------------------
<S> <C>
Proceeds on sale $1,680,000
Net assets of Mahogany 4,608,595
----------
$2,928,595
==========
</TABLE>
C) DRAGON MINING CORP. ("DRAGON")
During 1993, the Company sold all its shares in Dragon to a third
party for consideration of $1. Dragon had no assets; however, there
was a liability, including accrued interest, on account of a note
payable to a former director, of $729,548. As the liabilities of
Dragon are no longer included in the consolidated financial statements
of the Company a gain of $729,547 was recognized in 1993 on the sale.
6. PROPOSED SHARE EXCHANGE WITH TAMARINE VENTURES LTD.:
On November 17, 1995, the Company executed an Agreement and Plan of Share
Exchange (the "Agreement") with Tamarine Ventures Ltd., a company
incorporated under the laws of British Columbia, Canada ("Tamarine"). Under
the terms of the Agreement the Company is required to effect a one new for
ten old reverse stock split, whereby every ten shares of the Company's
issued and outstanding shares of Common Stock will be exchanged for one
share of Common Stock ("Post-Consolidated Share"), and issue, on closing,
one Post-Consolidated Share of the Company in exchange for four common
shares of Tamarine, thereby making Tamarine a wholly owned subsidiary of
the Company (the "Share Exchange"). At the closing of the Share Exchange,
the Company would issue 2,000,000 Post-Consolidated Shares of its Common
Stock to the shareholders of Tamarine. Closing of the Share Exchange is
subject to a number of conditions including regulatory acceptance, approval
by the shareholders of the Company and satisfactory results of due
diligence investigations conducted by the Company and Tamarine.
<PAGE>
NORTH LILY MININIG COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
___________________
6. PROPOSED SHARE EXCHANGE WITH TAMARINE VENTURES LTD., CONTINUED:
The Agreement contemplates that Tamarine will acquire other businesses
and/or companies using shares of the Company's Common Stock. On November
24, 1995, Tamarine executed a Business Sale Agreement (the "Cougar
Acquisition") with Atlay Cat Sales and Services Pty. Ltd. ("Atlay") of
Queensland, Australia, to acquire its business, known as Cougar Catamarans.
Cougar Catamarans manufactures and sells boats, which include passenger
ferries, pleasure boats, scenic tour boats, fishing boats, dive boats and
patrol boats. The purchase price is $2,500,000 plus the value at closing of
inventory and work in process. Of the purchase price, $500,000 can be made
in shares of the Company's Common Stock.
Closing of the Share Exchange is subject to a number of conditions,
including Company shareholder and regulatory approvals. There can be no
assurance that the necessary approvals will be obtained, in which case the
Agreement may be amended.
During 1995, the Company loaned Tamarine $35,000 pursuant to the issuance
of a promissory note by Tamarine. The promissory note bears interest at a
rate of 10% compounded semi-annually, payable at maturity. The principal
and interest is payable in full on December 31, 1997. 100,000 common shares
of Tamarine have been pledged as collateral.
See also Note 16(i).
7. PLANT AND EQUIPMENT:
Plant and equipment consist of the following at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995
------------------------------------------------------
Accumulated
Cost Depreciation Write-down Net
---------- ------------ ---------- -------
<S> <C> <C> <C> <C>
Mill and equipment $2,132,481 $1,092,966 $1,036,412 $ 3,103
Mining equipment 586,478 354,577 - 231,901
Office equipment and fixtures 220,898 177,791 - 43,107
---------- ---------- ---------- --------
$2,939,857 $1,625,334 $1,036,412 $278,111
========== ========== ========== ========
<CAPTION>
1994
------------------------------------------------------
Accumulated
Cost Depreciation Write-down Net
---------- ------------ ---------- --------
Mill and equipment $2,157,481 $1,092,966 $1,036,412 $ 28,103
Mining equipment 713,510 396,467 - 317,043
Office equipment and fixtures 220,898 104,859 - 116,039
---------- ---------- ---------- --------
$3,091,889 $1,594,292 $1,036,412 $461,185
========== ========== ========== ========
</TABLE>
Included in mill and equipment is an idle mill facility held for sale.
During 1995, the Company received $25,000 from the partial sale of the mill
facility. During 1994, the Company wrote down the carrying value of the
idle mill facility by $371,897.
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
___________________
8. MINERAL PROPERTIES:
The Company's investment in mineral properties at December 31, 1995 and
1994 is as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Mineral properties $5,328,528 $6,180,184
Less: Accumulated depletion 999,585 925,125
Provision for diminution in value 1,207,000 1,207,000
---------- ----------
$3,121,943 $4,048,059
========== ==========
</TABLE>
Below is a breakdown of various Company properties with their respective
net carrying values at December 31, 1995 and 1994.
<TABLE>
<CAPTION>
1995 1994
---------- ----------
U.S. PROPERTIES:
----------------
<S> <C> <C>
Nine Mile $ - $ 71,397
Tintic 1,404,593 1,479,593
Other 8,395 21,716
---------- ----------
1,412,988 1,572,706
CHILEAN PROPERTY:
-----------------
Tuina 1,668,617 2,475,353
BOLIVIAN PROPERTY:
------------------
San Simon 40,338 -
---------- ----------
$3,121,943 $4,048,059
========== ==========
</TABLE>
During 1993 the Company's Silver City mining operation located in Utah
ceased operations and commenced reclamation work. As at December 31, 1995,
the Company has accrued $220,000 (1994 - $152,119) as its share of
estimated net future costs to complete its share of the reclamation work.
The Company also suspended production at its Tuina mine in Chile during
1993 due to negative cash flows. This operation is not expected to resume
production until 1997 at the earliest, and requires the successful
financing of the construction of a solvent extraction/electrowinning plant
to produce cathode copper.
See also Note 5(a).
9. NOTES PAYABLE:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Baja Gold, Inc.
Promissory note (Cdn. $283,820), bearing interest
at 7% per annum.
150,000 shares of Baja has been pledged as collateral
for the promissory note $ 211,621 $ 201,337
Other
Promissory note (Cdn. $130,000), bearing interest
at 8% per annum.
90,000 shares of Baja has been pledged as collateral
for the promissory note 97,167 -
---------- -----------
$ 308,788 $ 201,337
========== ===========
</TABLE>
See also Note 16(iv).
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
__________
10. TAXES:
Pretax loss from continuing operations consists of the following:
<TABLE>
<CAPTION>
1995 1994 1993
--------- ----------- -----------
<S> <C> <C> <C>
United States $(346,235) $(1,517,229) $(4,671,599)
Foreign (265,827) (553,918) (2,217,757)
--------- ----------- -----------
$(612,062) $(2,071,147) $(6,889,356)
========= =========== ===========
</TABLE>
The components of the foreign pretax loss from continuing operations are as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- ----------- -----------
<S> <C> <C> <C>
Mahogany $ - $ - $ (856,576)
Minera (265,827) (553,918) (1,361,181)
--------- ----------- -----------
$(265,827) $ (553,918) $(2,217,757)
========= =========== ===========
</TABLE>
The Company no longer has Canadian loss carryforwards due to the
disposition of Mahogany in 1993 (see Note 5(b)).
For U.S. income tax reporting purposes, the Company has net operating loss
carryforwards of approximately $14,500,000 expiring from 1997 to 2010. The
Chilean loss carryforwards are approximately $3,215,000. Approximately $4
,452,000 of the United States losses were acquired in the merger with
Cumberland Gold, and utilization of these net operating losses is
restricted to a maximum of $2,900,000 annually under Internal Revenue Code
Section 382. In addition, the Company has U.S. capital loss carry-forwards
of approximately $27,400,000, expiring 1998. The U.S. net operating loss
and the capital loss carry-forwards are limited in their availability for
use in any given year. In addition, certain other limitations are placed on
the utilization of the net operating losses generated by the Company's
subsidiaries.
For U.S. income tax reporting purposes, the Company has not recorded
deferred ta x assets as they are reduced by a valuation allowance in
accordance with SFAS No. 109.
11. STOCK OPTION AGREEMENTS:
1984 Incentive Stock Option Plan:
During 1984, the shareholders approved an incentive stock option plan (the
"Plan") for officers and key employees that provided for grants of options
to purchase up to 300,000 shares of unregistered common stock. In 1990, the
Board of Directors approved an amendment to the Plan to increase the shares
available for option grants to 2,500,000. The options granted under the
Plan are immediately exercisable at the fair market value of the free
trading common stock on the date of grant or 110% of such value if the
optionee owned more than 10% of the combined voting power of all classes of
Company stock as of the grant date. The ability of the Company to grant
options, pursuant to the Plan, terminated in 1995. The options expire a
maximum of ten years from the date of grant.
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
__________
11. STOCK OPTION AGREEMENTS, CONTINUED:
A summary of the Company's stock option activity is as follows:
<TABLE>
<CAPTION>
Option
Number Price
of Shares per Share
--------- ---------
<S> <C> <C>
$
Outstanding at December 31, 1992 2,412,500 .75
Cancelled (2,352,500) .75
------------
Outstanding at December 31, 1993 60,000 .75
Granted 2,480,000 .20
Cancelled (60,000) .75
Cancelled (225,000) .20
------------
Outstanding at December 31, 1994 2,255,000 .20
Cancelled (282,500) .20
------------
Outstanding at December 31, 1995 1,972,500 .20
============
</TABLE>
12. RELATED PARTY TRANSACTIONS:
During the year ended December 31, 1995:
. The Company was charged management, consulting, and office
administration fees and salaries of $272,494 by officers and companies
under significant influence of certain directors of the Company. As at
December 31, 1995, $416,079 remained unpaid of which $385,000 and
$31,079 have been included in due to officers and accounts payable,
respectively.
. The Company issued 1,180,835 shares of the Company in settlement of
$354,250 of indebtedness. Of the amount, $315,000 were amounts owing
to companies controlled by current and former officers and directors
of the Company.
. The Company was advanced $74,532 (Cdn. $100,000) by a corporation with
a director who is also a director of the Company. The advance was
repaid during the year. As at December 31, 1995, the accrued interest
of $643 remained outstanding and was included in accounts payable.
During the year ended December 31, 1994:
. The Company was charged management, consulting and office
administration fees and salaries of $271,350 by officers and companies
under significant influence of certain current and former officers of
the Company. The companies also made disbursements on behalf of the
Company. As at December 31, 1994, $338,905 remained unpaid. Of this
amount $150,000, $165,000 and $23,905 have been included in
indebtedness to be settled with shares, due to officers and accounts
payable, respectively. See also Note 13(d).
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
__________
12. RELATED PARTY TRANSACTIONS, CONTINUED:
During the year ended December 31, 1993:
. The Company was charged management, consulting and office
administration fees of $106,167 by companies under significant
influence of certain current directors and officers of the Company. As
at December 31, 1993, $82,167 remained unpaid and has been included in
accrued and other liabilities.
. The Company was charged management, consulting and office
administration fees of $144,139 by companies under significant
influence of former directors and officers of the Company. As at
December 31, 1993, $39,000 remained unpaid and has been included in
accrued and other liabilities.
. The Company settled $500,000 of amounts due to Mahogany by way of an
assignment of a $500,000 promissory note issued by Baja (the "Baja
Note"). See also Note 5(b). The Company recorded interest income of
$11,778 on the Baja Note prior to the assignment.
. As a result of a change in management, the Company incurred charges of
$212,500 for a severance package negotiated with the Company's former
Chairman and President. In addition, $212,500 was incurred by the
Company's former subsidiary, Mahogany. These amounts have been
included as part of the Company's restructuring costs. Although
Mahogany's portion of the termination charge has been included in the
Company's Consolidated Statements of Operations, its liabilities are
no longer included in the Consolidated Balance Sheets (see Note 5(b)).
As at December 31, 1994, $156,250 remained unpaid and was included in
due to former officers and directors. During 1995, the Company issued
275,000 shares of the Company, at an ascribed value of $0.30 per
share, to the former officers and directors in settlement of the
$156,250, recording an extraordinary gain of $73,750 on settlement.
13. COMMITMENTS AND CONTINGENCIES:
(a) The Company has future commitments, and advance royalties payable for
the base terms of certain agreements, assuming no extensions, as
follows:
<TABLE>
<CAPTION>
Total
------------
<S> <C>
1996 $ 206,400
1997 224,400
1998 236,400
1999 937,000
------------
$ 1,604,200
============
</TABLE>
Rent expense for the years ended December 31, 1995, 1994 and 1993 was
$11,928, $12,769 and $92,873, respectively.
(b) The Tuina project is subject to a 5% in-kind royalty on gross
production, with a minimum of 16 tonnes of copper per month commencing
August 1, 1995. During 1994, Phoenix made a payment of $200,000. The
payment represented an advance payment against which future lease
payments could be offset. Since August 1995, the minimum lease
payments have been partially met through application of this advance
payment. Yuma has funded the remaining portion of payments due.
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
__________
13. COMMITMENTS AND CONTINGENCIES, CONTINUED:
(c) The Company and other third parties are subject to a multi-count claim
filed with the U.S. District Court in Butte, Montana claiming that, as
a result of exploration activity in the Southern Cross area, local
ground water supplies have been contaminated and reduced. Despite
studies prepared privately and by the Department of State Lands
(Montana) in 1992 which found no evidence of earlier claims, the
plaintiff continues to seek alternative legal approaches against the
defendants. Initial discovery proceedings were completed in 1995. The
Company believes the claims are without merit and will continue to
defend itself vigorously.
(d) As at December 31, 1995, the Company has recorded $385,000 as due to
officers. The officers have agreed not to demand repayment until
January 2, 1997, at which time the indebtedness may be either settled
with cash, if available, or the issuance of shares of the Company.
(e) During 1994, a former officer of the Company filed a complaint in the
U.S. Superior Court in Maricopa, Arizona seeking unpaid vacation pay,
together with interest thereon, treble damages, costs and attorney's
fees. The Company subsequently paid the former officer $20,834
representing the Company's calculation of its share of amounts owed.
However, the Company is disputing the former officer's computation of
the claim and also disputes any award for treble damages. A trial date
is scheduled on April 30, 1996.
14. SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
At December 31, 1995, 1994, and 1993, non-cash investing and financing
activities are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Common stock issued on settlement of debt $ 436,750 $ - $ -
Exchange of mineral property interest on
settlement of amounts due to Mahogany 797,481 - -
Common stock issued for services rendered 14,000 - 102,300
Baja shares received on sale of Mahogany - - 680,000
Baja Note received on sale of Mahogany - - 500,000
Exchange of Baja Note on settlement of amounts due
to Mahogany - - 500,000
Note receivable received on sale of discontinued operations - - 800,000
</TABLE>
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
__________
15. SEGMENT INFORMATION:
The following summary represents geographic information for the Company's
United States, Chilean and other operations as of and for the years ended
December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
United States Chile Other Total
-------------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
1995
Sales revenue $ - $ - $ - $ -
Net loss (656,205) (265,827) - (922,032)
Identifiable assets 2,201,249 1,960,133 40,338 4,201,720
1994
Sales revenue $ - $ - $ - $ -
Net loss (1,517,229) (553,918) - (2,071,147)
Identifiable assets 2,249,173 2,855,875 - 5,105,048
1993
Sales revenue $ 261,881 $ 1,147,955 $ - $ 1,409,836
Net loss (4,766,881) (1,447,702) (57,036) (6,271,619)
Identifiable assets 3,538,807 2,815,984 - 6,354,791
</TABLE>
The following summary represents segmented information for the Company's
activities as of and for the years ended December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
Gold Discontinued
and Silver Copper Operations Total
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
1995:
Sales revenue $ - $ - $ - $ -
Net loss (656,205) (265,827) - (922,032)
Identifiable assets 1,931,617 2,270,103 - 4,201,720
Depletion and depreciation 4,932 44,630 - 49,562
Abandonment of mineral properties 48,397 - - 48,397
Mineral property recoveries (47,984) (44,791) - (92,775)
1994:
Sales revenue $ - $ - $ - $ -
Net loss (1,517,229) (553,918) - (2,071,147)
Identifiable assets 2,249,173 2,855,875 - 5,105,048
Depletion and depreciation 41,875 87,858 - 129,733
Abandonment of and provision for
mineral properties 497,850 - - 497,850
Mineral property expenditures 59,819 240,198 - 300,017
1993:
Sales revenue $ 261,881 $ 1,147,955 $ - $ 1,409,836
Net loss (4,884,373) (1,447,702) 60,456 (6,271,619)
Identifiable assets 3,538,807 2,815,984 - 6,354,791
Depletion and depreciation 225,414 279,001 - 504,415
Abandonment of mineral properties 52,912 - - 52,912
Mineral property recoveries (31,920) (167,258) - (199,178)
</TABLE>
The Company did not generate any revenue during 1994 and 1995.
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
__________
15. SEGMENT INFORMATION, CONTINUED:
The Company's 1993 consolidated revenues for gold and silver were from
sales to one customer and for copper were from sales to one customer. The
Company believes that the loss of any of these customers would have no
material adverse impact on the Company because of the active worldwide
market for gold and silver and copper.
During 1992, the Company's gold and silver revenues were generated solely
from the Silver City Joint Venture. In February 1993, the Silver City
reserves were exhausted and the facility ceased operations. Residual gold
leaching continued in 1993.
16. SUBSEQUENT EVENTS
Subsequent to December 31, 1995, the Company:
i) issued 1,250,000 shares, at an ascribed price of $0.20 per share, to
Atlay as partial consideration of the Cougar Acquisition. These
shares are held in escrow. Subsequent to the issuance of the shares,
the Cougar Acquisition was not completed pursuant to the agreement.
Tamarine and Atlay are in negotiations to revise and extend the
Cougar Acquisition. There can be no assurance that the companies
will be able to reach an agreement in which case these shares will
be returned to the Company and held in treasury;
ii) issued 450,000 shares, at an ascribed price of $0.20 per share, to a
company and an individual pursuant to consulting agreements for
providing various consulting and financial public relations;
iii) completed a private placement and issued 555,556 shares, at a price
of $0.18 per share, to a corporation with a director who is also a
director of the Company; and
iv) sold 210,000 shares of Baja for net cash proceeds of $338,567. The
funds were then used to retire all of the notes payable and
outstanding accrued interest, totalling $335,625.
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
---------------
<TABLE>
<CAPTION>
Additions
------------------------------
Balance at Charged Charged Balance
Beginning to to Other at End
Description of Year Expenses Retirements Deductions of Year
- ----------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Valuation on marketable securities $ - $ - $ - $ - $ -
============= ============= ============= ============= =============
Year ended December 31, 1994:
Valuation on marketable securities $ - $ - $ - $ - $ -
============= ============= ============= ============= =============
Year ended December 31, 1993:
Valuation on marketable securities $ 1,084,176 $ - $ - $ (1,084,176)/(1)/ $ -
============= ============= ============= ============= =============
</TABLE>
(1) Includes reversal of provisions on sale of marketable securities.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1994
<PERIOD-START> JAN-01-1995 JAN-01-1994
<PERIOD-END> DEC-31-1995 DEC-31-1994
<CASH> 122,515 38,954
<SECURITIES> 448,800 299,874
<RECEIVABLES> 44,687 49,201
<ALLOWANCES> 0 0
<INVENTORY> 43,207 101,750
<CURRENT-ASSETS> 659,209 489,779
<PP&E> 6,132,430 7,134,686
<DEPRECIATION> 2,624,919 2,519,417
<TOTAL-ASSETS> 4,201,720 5,105,048
<CURRENT-LIABILITIES> 948,115 980,661
<BONDS> 385,000 1,168,223
0 0
0 0
<COMMON> 2,594,667 2,342,084
<OTHER-SE> 273,938 614,080
<TOTAL-LIABILITY-AND-EQUITY> 4,201,720 5,105,048
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> (995,782) (2,071,147)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (995,782) (2,071,147)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (995,782) (2,071,147)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 73,750 0
<CHANGES> 0 0
<NET-INCOME> (922,032) (2,071,147)
<EPS-PRIMARY> (0.04) (0.09)
<EPS-DILUTED> (0.04) (0.09)
</TABLE>
