<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
------------------
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
EXCHANGE ACT
0-16740
-----------
(Commission File Number)
NORTH LILY MINING COMPANY
-----------------------------
(Exact name of registrant as specified in its charter)
UTAH 87-0159350
-------- --------------
(State of Incorporation) (IRS Employer Identification No.)
SUITE 210, 1800 GLENARM PLACE, DENVER, COLORADO 80202
------------------------------------------------ --------
(Address of principal executive offices) (ZIP Code)
(303) 294-0427
------------------
(Registrant's telephone number, including area code)
N/A
-------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ______
-------
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date: May 13, 1996
Common shares 26,807,403
<PAGE>
NORTH LILY MINING COMPANY
-------------------------
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1996
INDEX
-----
<TABLE>
<CAPTION>
Part I. Financial Information:
<S> <C> <C>
Item 1. - Condensed Consolidated Balance Sheets -
March 31, 1996 and December 31, 1995........................................................ 3
- Condensed Consolidated Statements of Cash Flow -
Three Months Ended March 31, 1996 and 1995.................................................. 4
- Condensed Consolidated Statements of Operations -
Three Months Ended March 31, 1996 and 1995.................................................. 5
- Condensed Consolidated Statements of Shareholder's Equity -
March 31, 1996 and December 31, 1995........................................................ 6
- Notes to Condensed Consolidated Financial Statements........................................ 7
Item 2. - Management's Discussion and Analysis of
Financial Condition and Results of Operations............................................... 8
Part II. Other Information:
Item 6. - Exhibits and Reports on Form 8-K............................................................ 10
Signature................................................................................... 11
</TABLE>
2
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1996 1995
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 111,904 $ 122,515
Marketable securities 52,976 448,800
Accounts receivable 35,747 44,687
Inventory 43,207 43,207
------------ ------------
Total current assets 243,834 659,209
Advances to Tamarine Ventures Ltd. 103,308 35,000
Plant and equipment, net 272,124 278,111
Mineral properties, net 3,072,693 3,121,943
Other assets 107,457 107,457
------------ ------------
Total assets $ 3,799,416 $ 4,201,720
============ ============
LIABILITIES
Current liabilities:
Accounts payable $ 362,996 $ 381,326
Accrued and other liabilities 38,000 38,000
Reclamation liabilities 185,486 220,001
Notes payable - 308,788
------------ ------------
Total current liabilities 586,482 948,115
Due to officers 445,000 385,000
------------ ------------
Total liabilities 1,031,482 1,333,115
------------ ------------
SHAREHOLDERS' EQUITY
Common stock, $0.10 par value; authorized 30,000,000 shares;
issued 28,202,233 and 25,946,677 shares as of
March 31, 1996 and December 31, 1995, respectively 2,820,222 2,594,667
Additional paid-in capital 49,143,994 48,929,549
Accumulated deficit (48,950,479) (48,835,939)
Treasury stock, at cost, 1,394,830 and 144,830 shares
as of March 31, 1996 and December 31, 1995, respectively (267,395) (17,395)
Marketable securities valuation adjustment 21,592 197,723
------------ ------------
Total shareholders' equity 2,767,934 2,868,605
------------ ------------
Total liabilities and shareholders' equity $ 3,799,416 $ 4,201,720
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the three months ended:
March 31, March 31,
1996 1995
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (114,540) $ (213,185)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Amortization and depreciation 987 10,644
Net realized gain on sale of marketable securities and investments (118,883) (21,650)
Decrease (increase) in accounts receivable 23,652 (8,795)
Increase in accounts payable and accrued liabilities 26,958 54,271
Decrease in reclamation liabilities (34,515) (39,590)
Increase (decrease) in notes payable (308,788) 1,507
Other 90,000 -
-------------- --------------
Net cash used in operating activities (435,129) (216,798)
-------------- --------------
Cash flows from investing activities:
Acquisition and exploration of mineral properties,
net of option payments received 49,250 71,852
Advances to Tamarine Ventures Ltd. (68,308) -
Proceeds from sale of marketable securities and investments 338,576 66,314
Proceeds from sale of mining and milling equipment 5,000 57,500
-------------- --------------
Net cash provided by investing activities 324,518 195,666
-------------- --------------
Cash flows from financing activities:
Advances from International Mahogany Corp. - 117,317
Proceeds from issuance of common stock 100,000 -
-------------- --------------
Net cash provided by financing activities 100,000 117,317
-------------- --------------
Net increase (decrease) in cash and cash equivalents (10,611) 96,185
Cash and cash equivalents at beginning of period 122,515 38,954
-------------- --------------
Cash and cash equivalents at end of period $ 111,904 $ 135,139
============== ==============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the three months ended:
March 31, March 31,
1996 1995
-------------- ------------
<S> <C> <C>
Operating expenses:
General and administrative expenses $ 232,920 $ 232,239
Exploration and property carrying costs 1,298 5,662
------------- -----------
Operating loss (234,218) (237,901)
Other income:
Interest income 795 1,465
Net realized gain on sale of marketable securities 118,883 21,650
Other, net - 1,601
------------- -----------
Net loss $ (114,540) $ (213,185)
============= ===========
Net loss per common share $ (0.01) $ (0.01)
============= ===========
Weighted average common shares outstanding 25,447,133 23,420,842
============= ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the periods ended December 31, 1995 and March 31, 1996
(unaudited)
<TABLE>
<CAPTION>
Common Stock Additional
------------------------------ Paid-In Accumulated
Shares Amount Capital Deficit
--------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1994 23,420,842 $ 2,342,084 $ 48,545,382 $ (47,913,907)
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)
Net loss, period ended March 31, 1996 - - - (114,540)
Common stock issued for services rendered 450,000 45,000 45,000 -
Common stock issued for proposed acquisition 1,250,000 125,000 125,000 -
Return of common stock to treasury - - - -
Common stock issued by private placement 595,556 59,555 44,445 -
Marketable securities valuation adjustment - - - -
---------- ------------ ------------ -------------
Balance, March 31, 1996 28,202,233 $ 2,820,222 $ 49,143,994 $ (48,950,479)
========== ============ ============ =============
<CAPTION>
Marketable
Securities
Treasury Valuation
Stock Adjustment Total
------------ ----------- -----------
<S> <C> <C> <C>
Balance, December 31, 1994 $ (17,395) $ - $ 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 (17,395) 197,723 2,868,605
Net loss, period ended March 31, 1996 - - (114,540)
Common stock issued for services rendered - - 90,000
Common stock issued for proposed acquisition - - 250,000
Return of common stock to treasury (250,000) - (250,000)
Common stock issued by private placement - - 100,000
Marketable securities valuation adjustment - (176,131) (176,131)
------------ ----------- -----------
Balance, March 31, 1996 $ (267,395) $ 17,395 $ 2,767,934
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
6
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
GOING CONCERN
During 1995, 1994, and 1993 the Company incurred net losses of $922,032 and
$6,271,619, respectively and at December 31, 1995 had a working capital
deficiency of $288,906. At March 31, 1996, the Company had a working capital
deficiency of $342,648.
During 1993 the Company ceased operations at its Silver City mine and suspended
mining operations at its Tuina mine. As a result the Company has no operating
cash flow to meet ongoing obligations. The Company has continually been selling
non-essential Company assets to fund ongoing operations and property commitments
over the past three years. The Company requires 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. 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.
DISCLOSURES
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions for Rule 10-01 of
Regulation S-X. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The unaudited financial statements reflect all
adjustments which are, in the opinion of management, necessary to a fair
statement of results for interim periods presented. All adjustments made in the
preparation of interim period results, for the three month period ended March
31, 1996, are of a normal recurring nature. The operating results for the three
month period ended March 31, 1996 are not necessarily indicative of the results
that may be expected for the year ended December 31, 1996. For further
information, refer to the consolidated financial statements for the year ended
December 31, 1995.
LEGAL PROCEEDING
In August 1994, George Holcomb filed a complaint against the Company in the
Superior Court for the County of Maricopa, Arizona. Mr. Holcomb seeks vacation
pay which was not paid to him when his employment with the Company terminated,
together with interest thereon, treble damages, costs, and attorney fees.
During November, 1994, the Company paid $20,834 to Mr. Holcomb, representing the
Company's calculation of vacation pay owed. However, the Company disputes Mr.
Holcomb's computation, which is based on a higher rate of pay. The Company also
disputes any award for treble damages. Mr. Holcomb's motion for summary
judgment regarding the applicability of the statute which would award treble
damages was denied on April 3, 1995. A trial date has been scheduled for July,
1996.
DUE TO OFFICERS
As at March 31, 1996, the Company has recorded $445,000 as due to officers of
the Company. 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.
7
<PAGE>
NORTH LILY MINING COMPANY
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
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. There
can be no assurance that the necessary approvals will be obtained, in which case
the Agreement may be amended. The Agreement contemplates that Tamarine will
acquire other businesses and/or companies using shares of the Company's Common
Stock.
In January 1996, the Company issued 1,250,000 shares, at an ascribed price of
$0.20 per share, as partial consideration of the proposed acquisition of Atlay
Cat Sales and Services Pty Ltd. Subsequent to the issuance of the shares, the
proposed acquisition was not completed and the shares were returned to the
Company and held in treasury.
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. In addition, the Company has advanced Tamarine an
additional $66,253 through March 31, 1996.
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 in 1995, on May 3, 1996 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
8
<PAGE>
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 and securing the water rights for the Tuina Project.
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.
This restructuring allows the Company to retain a substantial interest in the
Tuina project while eliminating the most significant debt of the Company as well
as providing an infusion of cash. The bankable feasibility study delivered to
the Company by Yuma was prepared by Union Minere (the "Union Minere Study"),
with additional information having been prepared by Krebs, Kilborn Engineering
and the operating company for the Tuina project. The Union Minere Study
outlined an increased mineable reserve of 4.53 million metric tonnes averaging
0.91% copper oxide and l.16% total copper in the San Jose and the San Martin
pits with an additional 600,000 metric tonnes of similar grade on the Santa Rosa
pit. The Union Minere Study concludes that the Tuina project has the ability to
produce 83.6 million pounds of copper over a seven year period which would
generate an estimated life of mine operating profit of $26 million based on
copper prices at $1.20. Subject to the closing of the purchase and the
associated financing, Yuma projects that the mine and SX-EW plant construction
will commence within four weeks with copper cathode production expected 12 to 15
months later. Barring any unforseen complications this will allow the Company to
seek project and equity financing.
The completion of project and equity financing and the start of production on
the Tuina project will result in operating cash flow and enhance the Company's
assets. While the Company expects that its agreement with Yuma will close,
there is no guarantee that it will. If the agreement with Yuma does not close
the Company will retain a 41% interest in the Tuina project and the Company will
be required to obtain alternate financing to fund its carrying costs of the
Tuina property and its general overhead costs.
BOLIVIA - SAN SIMON GOLD PROJECT
The Company and Akiko Gold Resources Ltd. ("Akiko") finalized the acquisition
of properties in the San Simon gold project in northeastern Bolivia totalling
5,300 hectares on a 50/50 basis. The Company has a letter of understanding with
Minera American Barrick Bolivia S.A. ("Barrick") whereby Barrick will commence
work on a program starting in May which will include geologic mapping and
geochemical sampling. Upon completion of the program Barrick will furnish the
Company with all the results. The letter of understanding does not obligate any
of the parties to enter into negotiations concerning the properties and the
Company will not be responsible for any costs. In addition, the Company will
pursue its own work program on the properties with Akiko starting in June and
will include surveying of the property boundaries and geochem sampling in those
areas not covered by the Barrick program. The cost of this program is estimated
to be $110,000.
RESULTS OF OPERATIONS
The Company incurred a loss of $114,540 for the three month period ended March
31, 1996, compared to a loss of $213,185 for the same period in 1995. There was
no revenue, no depreciation and amortization charges and no costs of sales for
the three month period ending March 31, 1996. The Company does not anticipate
any revenue over the next year from current properties.
9
<PAGE>
During the three month period ended March 31, 1996, the Company incurred
$232,920 in general and administration expenses, compared to $232,239 for the
comparable period in 1995. For the three month period ended March 31, 1996, the
Company incurred exploration and property carrying costs of $1,298 and for the
same period in 1995, incurred costs of $5,662. The minimal costs in 1996 and
1995 are due primarily to reduced activities and the Company's reduced interest
in the Tuina project. Project costs incurred by the Tuina project since April
1995 have been funded by Yuma. The Company also recorded a realized gain of
$118,883 from the sale of Baja shares during the three month period ended March
31, 1996, compared to a gain of $21,650 for the same period in 1995.
At March 31, 1996 the Company had a working capital deficiency of $342,648, an
increase of $53,742 from its working capital deficiency of $288,906 at December
31, 1995.
During the three month period ended March 31, 1996 the Company received
$100,000 cash proceeds from the issuance of 595,556 shares in the capital stock
of the Company pursuant to a private placement. In addition, the Company issued
450,000 shares for consulting and financial public relations services provided,
at an ascribed value of $90,000, and a further 1,250,000 shares, at an ascribed
price of $0.20 per share, as partial consideration for a proposed acquisition of
Atlay Cat Sales and Services Pty Ltd. Subsequent to the issuance of the
1,250,000 shares, the proposed acquisition was not completed and the shares were
returned to the Company and held in treasury. During the comparable period in
1995, the Company was provided $117,317 in advances from Mahogany.
During the three month period ended March 31, 1996, the Company was provided
cash of $324,518 from investment activities. The Company received net proceeds
of $338,576 from the sale of its marketable securities, $49,250 net proceeds
from option payments received and $5,000 from the sale of mining and milling
equipment.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
See discussion contained in notes to condensed consolidated financial
statements under "Legal Proceedings" (Part I. Item 1).
ITEM 5. OTHER INFORMATION
-----------------
The registrant incorporates by reference the information contained in
the news release, a copy of which is filed as an exhibit to this
report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) The following exhibits are filed with this report.
Regulation
S-K Number Exhibit
---------- -------
27.1 Financial Data Schedule
(b) Reports on Form 8-K: none
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORTH LILY MINING COMPANY
By: /s/ Nick DeMare
---------------------------------------------
Nick DeMare May 16, 1996
Chief Financial Officer and Chief Accounting
Officer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 111,904
<SECURITIES> 52,976
<RECEIVABLES> 35,747
<ALLOWANCES> 0
<INVENTORY> 43,207
<CURRENT-ASSETS> 243,834
<PP&E> 6,307,469
<DEPRECIATION> (2,962,652)
<TOTAL-ASSETS> 3,799,416
<CURRENT-LIABILITIES> 586,482
<BONDS> 445,000
0
0
<COMMON> 2,820,222
<OTHER-SE> (52,288)
<TOTAL-LIABILITY-AND-EQUITY> 3,799,416
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 114,540
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (114,540)
<INCOME-TAX> 0
<INCOME-CONTINUING> (114,540)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (114,540)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
