<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
NORTH LILY MINING COMPANY
(Name of Registrant as Specified in its Charter)
Not Applicable
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3)
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
1) Title of each class of securities to which transaction applies:
______________________________________________________________________
2) Aggregate number of securities to which transaction applies:
______________________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
______________________________________________________________________
4) Proposed maximum aggregate value of transaction:
______________________________________________________________________
5) Total fee paid:
______________________________________________________________________
[x] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
______________________________________________________________________
2) Form, Schedule or Registration Statement No.:
______________________________________________________________________
3) Filing Party:
______________________________________________________________________
4) Date Filed:
______________________________________________________________________
<PAGE>
NORTH LILY MINING COMPANY
________________________________________________________________________________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD OCTOBER 25, 1996
________________________________________________________________________________
The Annual Meeting of the Shareholders of North Lily Mining Company (the
"Company") will be held on October 25, 1996, at 10:00 A.M. (local time) at the
Colorado National Bank, 5th Floor, 918 - 17th Street, Denver, Colorado, for the
following purposes:
(1) To elect four members of the Board of Directors to hold office until
the next annual meeting of shareholders, or until their successors are
duly elected and qualify;
(2) To consider and act upon a Plan of Recapitalization to reverse split
the outstanding Common Stock by changing each 10 issued and
outstanding shares into one issued and outstanding share of Common
Stock;
(3) To authorize the acquisition of Tamarine Ventures Ltd.;
(4) To approve and adopt the Company's 1996 Stock Option Plan;
(5) To approve and adopt the Company's 1996 Restricted Stock Plan;
(6) To amend the Company's Articles of Incorporation to authorize
5,000,000 shares of Preferred Stock; and
(7) To transact such other business as properly may come before the
meeting.
Only shareholders of record at the close of business on August 30, 1996
will be entitled to vote at the meeting. The transfer books of the Company will
not be closed.
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. PLEASE INDICATE
ON THE ENCLOSED PROXY WHETHER YOU PLAN TO ATTEND THE MEETING. IN ANY EVENT,
PLEASE MARK, SIGN, DATE, AND RETURN THE ENCLOSED PROXY TO INSURE YOUR SHARES ARE
REPRESENTED AT THE MEETING. YOU MAY VOTE IN PERSON IF YOU ATTEND THE MEETING
EVEN THOUGH YOU HAVE EXECUTED AND RETURNED A PROXY.
By order of the Board of Directors:
W. Gene Webb, Secretary
Denver, Colorado
September 18, 1996
<PAGE>
NORTH LILY MINING COMPANY
1800 Glenarm Place, Suite 210
Denver, Colorado 80202
(303) 294-0427
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
To be held October 25, 1996
INTRODUCTION
The Proxy enclosed with this Proxy Statement will be first sent or given to
shareholders on or about September 20, 1996, in connection with the solicitation
by the directors of North Lily Mining Company (the "Company") of Proxies to be
used at an Annual Meeting of Shareholders to be held at 10:00 a.m. (local time),
October 25, 1996 at the Colorado National Bank, 5th Floor, 918 - 17th Street,
Denver, Colorado (the "Annual Meeting").
PERSONS MAKING THE SOLICITATION
The Proxy is solicited on behalf of the directors of the Company. The
original solicitation will be by mail. Following the original solicitation,
management expects that certain individual shareholders will be further
solicited through telephonic or other oral communications from management.
Management may use specially engaged employees or paid solicitors for such
solicitation. Management intends to solicit Proxies which are held of record by
brokers, dealers, banks, or voting trustees, or their nominees, and may pay the
reasonable expenses of such record holders for completing the mailing of
solicitation materials to persons for whom they hold the shares. All
solicitation expenses will be borne by the Company.
TERMS OF THE PROXY
The enclosed Proxy indicates the matters to be acted upon at the Annual
Meeting and provides a box corresponding to each such matter. By appropriately
marking each box, a shareholder may specify whether to confer to or to withhold
from management the authority to vote the shares represented by the Proxy. The
Proxy also confers upon management discretionary voting authority with respect
to such other business as may properly come before the Annual Meeting.
If the Proxy is executed properly and is received by management prior to
the Annual Meeting, the shares represented by the Proxy will be voted. Where a
shareholder specifies a choice with respect to the matter to be acted upon, the
shares will be voted in accordance with such specification. Any Proxy which is
executed in such a manner as not to withhold authority shall be deemed to confer
such authority.
A Proxy may be revoked at any time prior to its exercise by (1) so
notifying the Company in writing, (2) filing with the Company a duly executed
proxy bearing a later date, or (3) voting in person at the Annual Meeting.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
VOTING SECURITIES
The securities entitled to vote at the Annual Meeting consist of all of the
issued and outstanding shares of the Company's $.10 par value common stock (the
"Common Stock"). The close
<PAGE>
of business on August 30, 1996, has been fixed by the Board of Directors of the
Company as the record date. Only shareholders of record as of the record date
may vote at the Annual Meeting. As of the record date, there were 29,907,403
shares of Common Stock issued and outstanding.
VOTING RIGHTS AND REQUIREMENTS
Each shareholder of record as of the record date will be entitled to one
vote for each share of Common Stock held as of the record date.
QUORUM AND VOTES REQUIRED FOR APPROVAL. The presence at the Annual Meeting
of the holders of an amount of shares of each class of stock entitled to vote at
the meeting, representing the right to vote shares of Common Stock of not less
than one-third of the number of shares of Common Stock outstanding as of the
record date will constitute a quorum for transacting business. Directors will
be elected by plurality vote. The affirmative vote of the majority of
outstanding shares is necessary to amend the Articles of Incorporation. The
affirmative vote of the majority of shares represented at the meeting and
entitled to vote thereat is necessary to approve the Plan of Recapitalization,
to approve the Agreement and Plan of Share Exchange with Tamarine Ventures Ltd.,
to adopt the 1996 Stock Option Plan, to adopt the 1996 Restricted Stock Plan,
and to approve all other matters that may come before the Annual Meeting.
PRINCIPAL SECURITY HOLDERS. The following table sets forth information, as
of the record date, with respect to the beneficial ownership of the Company's
Common Stock by each person known by the Company to be the beneficial owner of
more than five percent (5%) of the outstanding Common Stock, and by directors,
nominees, and officers of the Company, and by officers and directors as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) PERCENT OF CLASS (2)
<S> <C> <C>
CEDE & Co. 16,669,589 55.74%
Box 20
Bowling Green Station
New York, NY 10004
Philadep & Co 4,518,666 15.11%
1900 Market Street
2nd Floor
Philadelphia, PA 19103
Stephen E. Flechner 880,000 (3) 2.86%
W. Gene Webb 850,000 (3) 2.76%
Theodore E. Loud 70,000 0.23%
Nick DeMare 57,300 (4) 0.19%
John R. Twohig -0- --
All officers and directors as
a group (5 persons) 1,857,300 (5) 5.87%
_______________
</TABLE>
(1) Information with respect to beneficial ownership is based upon information
furnished by each shareholder contained in filings made with the Securities
and Exchange Commission. Unless otherwise indicated, the beneficial owner
has sole voting and investment power with respect to the shares shown.
2
<PAGE>
(2) Based on 29,907,403 shares outstanding. Where the persons listed on this
table have the right to obtain additional shares of Common Stock within 60
days from August 30, 1996, these additional shares are deemed to be
outstanding for the purpose of computing the percentage of class owned by
such persons, but are not deemed to be outstanding for the purpose of
computing the percentage of any other person.
(3) Includes 850,000 shares of Common Stock issuable upon exercise of presently
exercisable options.
(4) Includes 50,000 shares of Common Stock issuable upon exercise of presently
exercisable options.
(6) Includes 1,750,000 shares of Common Stock issuable upon exercise of
presently exercisable options.
CHANGES IN CONTROL
No arrangements are known to the Company, including any pledge by any
person of securities of the Company, the operation of which may, at a subsequent
date, result in a further change in control of the Company.
MATTERS TO BE ACTED UPON
PROPOSAL 1: ELECTION OF DIRECTORS
The directors of the Company are elected to serve until the next annual
shareholders' meeting or until their respective successors are elected and
qualify. Officers of the Company hold office until the meeting of the Board of
Directors immediately following the next annual shareholders' meeting or until
removal by the Board of Directors. Interim replacements for resigning directors
and officers are appointed by the Board of Directors.
The names of the nominees for directors and certain information about them
are set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY BUSINESS EXPERIENCE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Stephen E. Flechner 53 President and Chief May 1994 to present - President of the
Executive Officer and Director Company; 1979 to 1993 -
Vice President, General Counsel & Secretary,
Gold Fields Mining Corp., Denver,
Colorado; April 1993 to present - President of
Akiko Gold Resources Ltd., Vancouver, British Columbia
- -----------------------------------------------------------------------------------------------------------------------------------
W. Gene Webb 57 Executive Vice President, May 1994 to present - officer and director of
Corporate Secretary and the Company; September 1989 to March 1994 -
Director President and director of Canadian Industrial
Minerals Corp., Denver, Colorado; May 1989 to
present - officer and director of Tellis Gold
Mining Company, Vancouver, British Columbia;
March 1990 to June 1994 - President and director of
Jerez Investment Corp., Denver, Colorado; September 1978
to present - President and director of Ferret Exploration
Company, Inc., Denver, Colorado
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY BUSINESS EXPERIENCE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
John R. Twohig 43 Vice President - January 1994 to present - Chairman and Chief Executive Officer
Corporate of Tamarine Ventures Ltd., Vancouver, British Columbia;
Development and January 1990 senior marine consultant for international
Director clients, Vancouver, British Columbia
- -----------------------------------------------------------------------------------------------------------------------------------
Theodore E. Loud 60 Director 1986 to present -President of TEL Advisors Inc. of Virginia,
Charlottesville, Virginia, a registered investment adviser and
corporate financial consulting company
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table sets forth, as of the date of this Proxy Statement, the
names and ages of the Company's executive officers, including all positions and
offices held by each such person. These officers are elected to hold office for
one year or until their respective successors are duly elected and qualified:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY BUSINESS EXPERIENCE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Stephen E. Flechner 53 President and Chief See table above.
Executive Officer
and Director
- -----------------------------------------------------------------------------------------------------------------------------------
W. Gene Webb 57 Executive Vice See table above.
President,
Corporate Secretary
and Director
- -----------------------------------------------------------------------------------------------------------------------------------
Nick DeMare 40 Treasurer Chartered Accountant. May 1991 to present -President, Chase
Management Ltd., Vancouver, British Columbia; February 1986 to
April 1991 - Vice President and Chief Financial Officer, Ingot
Management Ltd., Vancouver, British Columbia. Mr. DeMare is a
director and/or officer of several publicly-traded Canadian
companies.
- ------------------------------------------------------------------------------------------------------------------------------------
John R. Twohig 43 Vice President - See table above
Corporate
Development and
Director
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Except as otherwise indicated below, no organization by which any officer
or director previously has been employed is an affiliate, parent, or subsidiary
of the Company.
The Company does not have any standing audit, nominating, or compensation
committees of the Board of Directors.
4
<PAGE>
Messrs. Flechner and Webb have been directors since May 1994. They took
action seven times by unanimous written consent during the 1995 fiscal year.
Each director participated in the written consents that occurred during the
period he was a director. Messrs. Twohig and Loud became directors in March
1996. There have been no official meetings of the board of directors since
August 20, 1992.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
During the fiscal year ended December 31, 1995, there were no known
failures to file on a timely basis Forms 3, 4, and/or 5 with the Securities and
Exchange Commission as required by Section 16(a) of the Securities Exchange Act
of 1934.
EXECUTIVE COMPENSATION
The following table sets forth in summary form the compensation received
during each of the Company's last three completed fiscal years by the Chief
Executive Officer of the Company and by each other executive officer of the
Company whose total salary and bonus exceeded $100,000 in the Company's fiscal
year ended December 31, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-----------------------------------------------------------------------------------
NAME AND OTHER RESTRICTED OPTIONS/ LTIP ALL OTHER
PRINCIPAL ANNUAL STOCK SARS PAYOUTS COMPENSATION
POSITION YEAR SALARY BONUS COMPENSATION ($) AWARD(S) ($) (#) ($) ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stephen E. Flechner, 1995 $110,000/1/ -0- -0- -0- -0- -0- -0-
President and Chief 1994 $82,500/2/ -0- -0- -0- 850,000 -0- -0-
Executive Officer/2/ 1993 -0- -0- -0- -0- -0- -0- -0-
- -----------------------------------------------------------------------------------------------------------------------------------
W. Gene Webb, Executive 1995 $110,000/1/ -0- -0- -0- -0- -0- -0-
Vice President and 1994 $82,500/2/ -0- -0- -0- 850,000 -0- -0-
Corporate Secretary 1993 -0- -0- -0- -0- -0- -0- -0-
- ------------------------------------------------------------------------------------------------------------------------------------
William E. Grafham, 1995 -0- -0- -0- -0- -0- -0- -0-
former Chairman of 1994 -0- -0- -0- -0- 120,000 -0- -0-
the Board, President 1993 -0- -0- -0- -0- -0- -0- -0-
and Chief Executive
Officer/3//4/
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
----------------------------------------------------------------------------------
NAME AND OTHER RESTRICTED OPTION/ LTIP ALL
PRINCIPAL ANNUAL STOCK SARs PAYOUTS OTHER
POSITION YEAR SALARY BONUS COMPENSARION ($) AWARD(S) ($) (#) ($) COMPENSATION
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Anton R. Hendriksz, 1995 -0- -0- -0- -0- -0- -0- -0-
former Chairman of 1994 -0- -0- -0- -0- -0- -0- -0-
the Board 1993 $132,505 -0- -0- -0- -0- -0- $ 62,500
- -----------------------------------------------------------------------------------------------------------------------------------
Thomas L. Crom, former 1995 -0- -0- -0- -0- -0- -0- -0-
President, Chief 1994 -0- -0- -0- -0- -0- -0- -0-
Executive Officer & 1993 $ 89,772 -0- -0- -0- -0- -0- $ 50,000
Treasurer /4/
- -----------------------------------------------------------------------------------------------------------------------------------
George A. Holcomb, former 1995 -0- -0- -0- -0- -0- -0- -0-
Vice President of 1994 -0- -0- -0- -0- -0- -0- $20,834/5/
Operations 1993 126,250 -0- -0- -0- -0- -0- -0-
</TABLE>
______________
(1) Unpaid as at December 31, 1995. In addition, Messrs. Flechner and Webb
have each agreed to defer a portion of their salaries. See "Certain
Transactions" below.
(2) Unpaid as at December 31, 1994. Messrs. Flechner and Webb have each agreed
to accept shares of Common Stock of the Company in settlement of these
unpaid salaries. See also "Certain Transactions" below.
(3) Mr. Grafham resigned as an officer of the Company as of May 17, 1994. On
that date, Mr. Flechner became the Chief Executive Officer of the Company.
(4) Mr. Crom resigned as of October 25, 1993. On that date, Mr. Grafham became
the Chief Executive Officer of the Company.
(5) Vacation pay paid to Mr. Holcomb.
Employment agreements with the Company's executive officers are described
below in "Employment Agreements."
The Company does not pay non-officer directors for their services as such
nor does it pay any director's fees for attendance at meetings. Directors are
reimbursed for any expenses incurred by them in their performance as directors.
STOCK OPTION PLANS
The Company adopted an Incentive Stock Option Plan (the "Plan") in 1984
under which a total of 2,500,000 shares were available for grant to provide
incentive compensation to officers and key employees of the Company.
The Plan was administered by the Board of Directors. Options could be
granted for up to 10 years at not less than the fair market value at the time of
grant except that the term could not exceed
6
<PAGE>
five years and the price had to be 110% of fair market value for any person who
at the time of grant held more than 10% of the total voting power of the
Company. Unless otherwise specified by the Board of Directors, options were
exercisable as they vested at a rate of 2.77% per month, and terminated ten
years after the date of grant. The Plan expired October 31, 1994.
Options may be exercised by payment of the option price (I) in cash, (ii)
by tender of shares of Common Stock of the Company and which have a fair market
value equal to the option price, or (iii) by such other consideration as the
Board of Directors may approve at the time the option is granted.
At December 31, 1995, options to purchase 1,972,500 shares at $0.20 were
outstanding under the Plan.
There were no individual grants of stock options or freestanding stock
appreciation rights made during the fiscal year ended December 31, 1995.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS AT FISCAL YEAR IN-THE-MONEY OPTIONS/SARS
END (#) AT FISCAL YEAR END ($)
- -----------------------------------------------------------------------------------------------------------------------------------
SHARES ACQUIRED ON EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) VALUE REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Stephen E. Flechner -0- -0- 850,000/0 0/0
- ------------------------------------------------------------------------------------------------------------------------------------
W. Gene Webb -0- -0- 850,000/0 0/0
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company has no other long-term incentive plans.
There are no arrangements pursuant to which directors of the Company are
compensated in their capacities as such.
EMPLOYMENT AGREEMENTS
Effective May 16, 1994, Messrs. Flechner and Webb entered into employment
agreements with the Company. The agreements provide for compensation consisting
of annual salary of $120,000; benefits which shall include health and disability
insurance, key-man life insurance, and retirement plan; an annual cash bonus,
50% of which may be taken in the Company's common stock at the election of
Messrs. Flechner and Webb; and equity grants pursuant to the Company's incentive
stock option plan and restricted stock plan. The term of the employment
agreements is five years.
7
<PAGE>
TOTAL RETURN TO STOCKHOLDERS
(ASSUMES $100 INVESTMENT ON DECEMBER 31, 1990)
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
TOTAL RETURN ANALYSIS
12/31/90 12/31/91 12/31/92 12/31/93 12/30/94 12/29/95
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
North Lily Mining Co. $ 100.00 $ 78.57 $ 64.29 $ 42.86 $ 14.29 $ 7.14
- ------------------------------------------------------------------------------------------------------------
S&P 500 Gold $ 100.00 $ 81.24 $ 75.88 $ 138.70 $ 112.14 $ 126.15
- ------------------------------------------------------------------------------------------------------------
Nasdaq Composite (US) $ 100.00 $ 160.84 $ 187.19 $ 214.88 $ 210.05 $ 296.81
- ------------------------------------------------------------------------------------------------------------
</TABLE>
S&P 500 Gold data provided by Bloomberg Financial Markets
8
<PAGE>
CERTAIN TRANSACTIONS
During 1994, the Company was charged management, consulting, and office
administration fees of $183,786 by private companies owned or controlled by
William E. Grafham, a former officer and director of the Company. In addition,
during 1994 these companies made disbursements on behalf of the Company. As of
December 31, 1994, $265,000, which included an outstanding balance of $82,167 as
of December 31, 1993, remained unpaid. As indicated in the table below, the
indebtedness of $265,000 was paid in 1995 with the issuance of 883,334 shares of
the Company's Common Stock.
During 1994 and 1995, , the Company was charged management, consulting, and
office administration fees of $65,264 (Cdn.$91,488) and $51,194 (Cdn.$70,400),
respectively, by private companies owned by Nick DeMare, an officer of the
Company. As of December 31, 1994, $68,448 (Cdn. $95,860), including amounts
unpaid from December 31, 1993, remained unpaid. As indicated in the table
below, indebtedness of $50,000 was paid in 1995 with the issuance of 166,667
shares of the Company's Common Stock. As of December 31, 1995, $31,079 remained
unpaid.
In order to reduce its cash requirements during 1995, the Company
negotiated with certain current and former directors and officers, related
companies, and creditors to settle $354,250 of indebtedness and unpaid amounts
through the issuance of Common Stock at an ascribed price of $0.30 per share to
the following parties:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Indebtedness to be Ascribed Price Number of
Creditor Settled by Shares per Share Shares
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
W.G. Ltd./1/ $265,000 $0.30 883,334
- ---------------------------------------------------------------------------------------------------
DNG Capital Corp./2/ $ 50,000 $0.30 166,667
- ---------------------------------------------------------------------------------------------------
Others $ 39,250 $0.30 130,834
- ---------------------------------------------------------------------------------------------------
Total $354,250 1,180,835
- ---------------------------------------------------------------------------------------------------
</TABLE>
/1/ A private company owned by William E. Grafham
/2/ A private company owned by Nick DeMare.
All of the shares were issued in 1995.
During 1993, Mr. Anton R. Hendriksz and Mr. Thomas L. Crom, then Chairman
of the Board and President of the Company, respectively, agreed to terminate
their existing employment agreements with the Company and to provide consulting
services to International Mahogany Corp. ("Mahogany") and the Company for a 24-
month period in consideration for cash payments of $125,000 and $100,000,
respectively, and quarterly cash payments of $12,500 each over a 24-month
period. The termination and consulting payments were to be shared equally by
Mahogany and the Company. Subsequent to an initial payment in 1993 of $31,250
to Mr. Hendriksz and $25,000 to Mr. Crom (being the Company's share of one-half
of their termination payments), the Company and Mahogany have not made further
payments to Messrs. Hendriksz and Crom. However, the Company has included
$156,250 (being the Company's share of the termination and consulting
obligations) as due to former officers and directors.
The Agreement also outlined that Company stock purchase options held by
Messrs. Hendriksz and Crom would, subject to regulatory approval, be extended
for a two-year period and that the exercise price would be adjusted to then
current market levels and be allowed to be granted to Canadian companies owned
by Messrs. Hendriksz and Crom. These stock purchase options have not been
amended.
9
<PAGE>
Pursuant to a Settlement Agreement dated June 20, 1995, assignees of
Messrs. Hendriksz and Crom agreed to accept 150,000 and 125,000 shares of the
Company's Common Stock, respectively, in full settlement of all claims against
the Company.
On August 25, 1995, Turks Ltd., a private company of which W. Gene Webb is
a director, borrowed $74,532 (Cdn.$100,000) and in turn loaned the money to the
Company. The Company pledged 90,000 shares of Baja Gold Inc. stock as
collateral to secure the loan. The loan was due November 30, 1995 and interest
was charged at the rate of 8.875% per annum. Neither Turks Ltd. nor Mr. Webb
received any compensation from this transaction.
On October 3, 1995, the Turks, Ltd. loan principal described above was
repaid with proceeds from a loan made to the Company by a non-affiliated third
party. The loan was in the amount of $97,167 (Cdn.$130,000), was originally due
December 31, 1995, and accrued interest at the rate of 8% per annum. The
Company pledged 90,000 shares of Baja Gold Inc. Stock as collateral to secure
the loan. The loan was extended to January 31, 1996 and paid as of that date.
During 1994, the Company recorded $165,000 as due to officers relating to
unpaid salaries to Messrs. Flechner and Webb. The officers originally agreed
not to demand payment of this amount until January 2, 1996, at which time the
indebtedness was to be either settled with cash, if available, or the issuance
of shares of the Company, at an ascribed price of $0.30 per share. The amount
remained outstanding at December 31, 1995. In addition, effective January 1,
1995, the officers agreed to reduce their salary compensation by 10% (the "1995
Compensation") and further 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.
During 1995, the Company recorded $220,000 of the 1995 Compensation as accounts
payable. As at December 31, 1995, a total of $385,000 was due to Messrs.
Flechner and Webb, who have agreed not to demand payment of amounts owed to them
until January 2, 1997.
RECOMMENDATION AND VOTE REQUIRED
The Board recommends that the shareholders vote "FOR" its nominees:
Messrs. Flechner, Loud, Twohig, and Webb. Directors will be elected by
plurality vote. Should the Company not consummate the proposed acquisition of
Tamarine Ventures Ltd., Mr. Twohig has agreed to resign from all officer and
director positions with the Company. See "Voting Securities and Principal
Holders Thereof" above.
PROPOSAL 2: AUTHORIZATION TO IMPLEMENT REVERSE SPLIT
The Board of Directors has proposed, subject to shareholder approval, to
effect a 1-for-10 reverse stock split whereby every ten (10) shares of the
Company's currently outstanding shares of Common Stock will be exchanged for one
share of Common Stock. There are presently 29,907,403 shares outstanding, and
the reverse split would reduce this number to approximately 2,990,740 shares.
The reverse split will not alter the number of shares of Common Stock authorized
for issuance, which will remain at 30,000,000 shares.
REASONS FOR THE PROPOSED REVERSE STOCK SPLIT
In addition to the reverse stock split being a condition precedent to the
consummation of the Share Exchange with Tamarine (see Proposal 3 below),
management of the Company is proposing the
10
<PAGE>
reverse stock split for the following reasons: management believes a reverse
stock split will (1) reduce the number of outstanding shares of Common Stock and
thereby make available shares of Common Stock with which to acquire assets into
the Company; and (2) help raise the trading price of the Company's Common Stock.
In discussions by the Company's executive officers with members of the brokerage
and banking industries, the Company has been advised that the brokerage firms
might be more willing to evaluate the Company's securities as a possible
investment opportunity for their clients and may be more willing to act as a
market maker in the Company's securities if the price range for the Company's
Common Stock were higher. Management believes that additional interest by the
investment community in the Company's stock, of which there can be no assurance,
is desirable.
Management of the Company also believes that existing low trading prices of
the Company's Common Stock may have an adverse impact upon the current level of
the trading market for the Common Stock. In particular, brokerage firms often
charge higher commissions for transactions involving low-priced stocks than they
would for the same dollar amount of securities with a higher per share price.
Some brokerage firms will not recommend purchases of low-priced stocks to their
clients or make a market in such stock, which tendencies may adversely affect
the liquidity for current shareholders and the Company's ability to obtain
additional equity financing.
EFFECTS OF APPROVAL OF THE REVERSE STOCK SPLIT
Theoretically, the market price of the Company's Common Stock should
increase approximately 10-fold following the proposed reverse stock split. It is
hoped that this will result in a price level which will overcome the reluctance,
policies, and practices of broker-dealers described above and increase interest
in the Company's Common Stock by investors. Shareholders should note that the
effect of the reverse stock split upon the market price for the Company's Common
Stock cannot be accurately predicted. Further, there can be no assurance that
the per share market price of the post-split Common Stock will trade at a price
10 times the price of the pre-split Common Stock or, if it does, that the price
can be maintained at that level for any period of time.
On July 29, 1996, the closing bid and asked prices of the Company's Common
Stock were $.187 and $.156 per share, respectively, as reported by NASDAQ. The
foregoing quotation reflects inter-dealer prices, without retail mark-up mark-
down, or commission and may not represent actual transactions.
Management, by implementing a reverse stock split, does not intend to "take
the company private" by decreasing the number of shareholders of the Company.
Management does not believe that a 1-for-10 reverse stock split would result in
any shareholders being eliminated or closed out as a result of holding less than
one share after the reverse stock split. Approximately 3,300 shareholders as of
March 11, 1996, have a number of shares not evenly divisible by 10. As disclosed
below, the Company will round up to the nearest whole share instead of issuing
fractional shares resulting from the reverse stock split.
PROCEDURE FOR IMPLEMENTING THE REVERSE SPLIT
If this proposal is adopted by the shareholders, ten (10) shares of pre-
split Common Stock will be exchanged for each share of post-split Common Stock.
Shares of post-split Common Stock may be obtained by surrendering certificates
representing shares of pre-split Common Stock to the Company's transfer agent,
American Securities Transfer, Inc., 938 Quail Street, Suite 101, Lakewood,
Colorado 80215 (the "Transfer Agent"). To determine the number of shares of
post-split Common Stock issuable to any record holder, the total number of
shares represented by all of the certificates issued in the name of that record
holder held in each account as set forth on the records of the Transfer Agent on
the date upon which the reverse split becomes effective will be divided by 10.
Upon surrender to the Transfer Agent of the share certificate(s) representing
shares of pre-split Common
11
<PAGE>
Stock and the applicable transfer fee, which presently is $15.00 per certificate
payable by the holder, the holder will receive a share certificate representing
the appropriate number of shares of post-split Common Stock. If the division
described above results in a quotient which contains a fraction, the Company
will round up to the nearest whole share instead of issuing a fractional share.
Shareholders are not required to exchange their certificates of pre-split Common
Stock for post-split Common Stock. It is anticipated that the reverse split will
be effected immediately following receipt of the necessary shareholder approval.
FEDERAL INCOME TAX EFFECTS OF THE PLAN
Holders of Common Stock will not be required to recognize any gain or loss
if the reverse stock split is effected. The tax basis of the aggregate shares of
post-split Common Stock received by present shareholders will be equal to the
basis of the aggregate shares of the pre-split Common Stock exchanged therefor.
The holding period for shares of post-split Common Stock will include the
holding period of the pre-split Common Stock when calculated for purposes of
taxation or sales under Rule 144 of the Rules and Regulations promulgated under
the Securities Act of 1933, as amended (the "Securities Act"). Rule 144 requires
that "restricted securities," as defined in Rule 144, be held at least two years
before routine sales can be made in accordance with the provisions of the Rule.
Rule 144 provides that shares issued in a reverse stock split are deemed to have
been held from the date of acquisition of the shares involved in the reverse
stock split.
INTEREST OF CERTAIN PERSONS IN THIS PROPOSAL
Mr. John R. Twohig, an officer and director of the Company and of Tamarine
Ventures Ltd., has a substantial interest in this proposal, since approval of
the reverse split is one of the conditions precedent to consummation of the
proposed Share Exchange with Tamarine Ventures Ltd. See Proposal 3 below.
Approval of the reverse split is required if the Company is to acquire
Tamarine Ventures Ltd. If the reverse split is approved but Proposal 3 (to
acquire Tamarine Ventures Ltd.) is not approved, the Company will not acquire
---
Tamarine Ventures Ltd.
RECOMMENDATION AND VOTE REQUIRED
The Board recommends that the shareholders vote "FOR" this proposal to
approve the reverse stock split. The affirmative vote of a majority of the
shares represented at the Meeting and entitled to vote is required for approval.
See "Voting Securities and Principal Holders Thereof" above.
PROPOSAL 3: AUTHORIZATION TO ACQUIRE TAMARINE VENTURES LTD.
TERMS OF THE SHARE EXCHANGE
On November 17, 1995, the Company executed an Agreement and Plan of Share
Exchange with Tamarine Ventures Ltd., a company incorporated under the laws of
British Columbia, Canada ("Tamarine"). The terms of that agreement have been
abandoned, and an amended and restated agreement is now in final negotiation
stages. All reference to the "Agreement" herein refer to the proposed amended
and restated Agreement. The Agreement provides for the issuance of 300,000 post-
reverse stock split shares of Common Stock of the Company in exchange for at
least 90% of the issued and outstanding common shares of Tamarine, thereby
making Tamarine a subsidiary of the Company (the "Share Exchange"). It is
proposed that Tamarine will operate as the marine division and subsidiary of the
Company after the Share Exchange.
12
<PAGE>
If certain revenues and net profits targets are achieved by Tamarine after
the Share Exchange during any four consecutive calendar quarters, the
shareholders of Tamarine may be issued up to an additional 2,700,000 post-
reverse split shares ("Additional Consideration") as follows: Gross revenues of
$8,000,000 not later than December 31, 1997 - 700,000 shares; gross revenues of
$20,000,000 not later than December 31, 1999 - 1,000,000 shares; and net after
tax profits of $2,750,000 not later than December 31, 1999 - 1,000,000. If net
after tax profits fall short of the $2,750,000 target, but at least $1,500,000
are achieved by December 31, 1999, the Company shall issue a proportionate
amount of the 1,000,000 shares.
The exchange rate for the exchange of shares of the common stock of
Tamarine for shares of the Common Stock of the Company was determined by arm's
length negotiation among the parties. Among the factors considered were the
financial condition of each corporation, their future potential, and the market
price of the Company's Common Stock.
TAMARINE
Tamarine Ventures Ltd. was incorporated under the laws of Province of
British Columbia on January 7, 1994, for the purpose of acquiring, developing,
manufacturing, and marketing marine products. Its principal executive offices
are located at 402-938 Howe Street, Vancouver, British Columbia, V6Z 1N9,
Canada, where its telephone number is (604) 687-7593.
In September 1994, Tamarine purchased limited manufacturing, marketing, and
distribution rights (excluding such rights as applicable within the European
Union) to two products (vessels) produced by Port Isaac Workboats of Cornwall,
England, in consideration for Tamarine common stock with a deemed issue price of
$750,000 Cdn. Tamarine also entered into an option agreement to acquire, for
$250,000 Cdn., physical infrastructure consisting of the manufacturing shop,
offices, store room, entries, a launching trailer, office fixtures, and other
pieces of equipment and furnishings; the molds, drawings, and templates for the
production of two more vessels; and the marketing rights to all four vessels
within the European Union. Of the purchase price, $25,000 Cdn. has been paid.
Tamarine must identify financing to consummate this option agreement as a
condition precedent to closing the proposed Share Exchange.
In June 1996, Tamarine entered into a Memorandum of Understanding with PT
Sinar Indra Makmur of Jakarta, Indonesia, and Yayasan "Hree Dharma Shanty" of
Jakarta, Indonesia, regarding the creation of a fast ferry company to operate in
the Republic of Indonesia. It is proposed that the new company would be owned
42.5% by Tamarine. Tamarine would have responsibility for obtaining preliminary
information about ferry terminals and for locating suitable roll-on roll-off
ferries and fast ferries contemplated by this venture.
REASONS FOR THE SHARE EXCHANGE
Management of the Company proposed the Share Exchange with Tamarine as a
means of diversifying and expanding the Company's business. The Company's
operations are limited to mining in North America and South America. Tamarine's
existing marine operations are in England, with negotiations in Asia and the
Pacific Rim.
The Share Exchange is attractive to Tamarine because it presents Tamarine
with an opportunity to become part of a publicly-traded entity. Management of
Tamarine believes that this status may facilitate obtaining financing for the
development of future marine operations and/or acquisitions.
13
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE SHARE EXCHANGE
The Share Exchange is intended to constitute a tax-free "reorganization"
under Section 368(a)(1)(B) of the Internal Revenue Code of 1986.
ACCOUNTING TREATMENT
For accounting purposes, the Share Exchange will be recorded using the
"purchase" method of accounting. For pro forma effects of the Share Exchange
upon the results of operations and financial position of the Company, see the
North Lily Unaudited Pro Forma Condensed Consolidated Balance Sheet attached
hereto as Exhibit C.
CONDITIONS PRECEDENT TO THE SHARE EXCHANGE
The Share Exchange is subject to the prior satisfaction of various
conditions set forth in the Agreement, including approval of the Share Exchange
by the shareholders of each corporation, the receipt of certain opinions of
counsel to each corporation, and the continued accuracy of the representations
and warranties, and compliance with the covenants, of each corporation set forth
in the Agreement. These conditions, other than the required approval of the
Agreement, may be waived by either corporation, if, in the reasonable opinion of
the Board of Directors of such corporation, such waiver shall not have a
materially adverse effect on the shareholders of the corporation, and the Share
Exchange may proceed even if one or more of them is not satisfied. If not
waived, the Share Exchange may be terminated by the nonwaiving party. No
compliance or approvals in connection with federal or state regulatory
requirements must be obtained in connection with the Share Exchange.
Even if the necessary shareholder approvals are obtained from the Company's
shareholders, the Company may fail to consummate the Share Exchange if certain
conditions precedent are not met.
RESULTS OF THE SHARE EXCHANGE; MANAGEMENT OF THE COMPANY AFTER THE SHARE
EXCHANGE
If the Share Exchange occurs, current Company and Tamarine shareholders
will own approximately 90.9% and 9.1%, respectively, of the shares of Common
Stock of the Company to be outstanding. The rights of shareholders of the
Company will not otherwise be affected as a result of this transaction.
On a pro forma basis as of March 31, 1996, the net assets of the Company
and Tamarine would constitute approximately 85% and 15%, respectively, of total
shareholder equity of the resulting company. See the North Lily Unaudited Pro
Forma Condensed Consolidated Balance Sheet attached hereto as Exhibit C.
After the Share Exchange, the Company will continue to be managed by the
Company's existing Board of Directors. The Board of Directors is expected to
elect the following persons as officers of the Company:
President and CEO..................... Stephen E. Flechner
Executive Vice President and Secretary....... W. Gene Webb
Vice President/Maritime Operations......... John R. Twohig
Treasurer..................................... Nick DeMare
VOTING AGREEMENT
Upon the closing of the Share Exchange, it is agreed that the
parties/entities entitled to become holders of a majority of the shares issuable
as Additional Consideration shall enter into a voting
14
<PAGE>
agreement whereby they shall agree that for a three-year period, their shares of
the Company's Common Stock shall be voted by voting trustees comprising a
representative of the Company and a Tamarine representative.
MARKET INFORMATION
Reference is made to the Company's Annual Report for market price
information on the Company's Common Stock. Tamarine is a private company and its
common stock is not traded.
On November 16, 1995, the closing bid and ask prices for the Company's
Common Stock were $.09 and $.16 per share, respectively, as quoted by NASDAQ.
November 16, 1995 was the day preceding the date of the original agreement with
Tamarine.
On July 29, 1996, there were 10,419 record holders of the Company's Common
Stock and as of July 29, 1996, there were 41 record holders of Tamarine's common
stock.
The Company 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 the Company for the development of its business.
Tamarine has no record of paying any cash dividends on its common stock and its
management has no intention of paying any such cash dividends in the foreseeable
future. Neither the Company nor Tamarine is contractually precluded or
otherwise restricted from paying dividends.
SELECTED FINANCIAL INFORMATION OF TAMARINE
Reference is made to the Company's Annual Report for selected financial
information. The following table sets forth selected financial data for
Tamarine for its last fiscal year, and the nine-month period ended April 30,
1996. Such data should be read in conjunction with the financial statements of
Tamarine appearing elsewhere herein as Exhibit B. Results for the interim
period for Tamarine are not necessarily indicative of results for the full year.
Per share information for Tamarine assumes 8,000,000 shares outstanding, since
reduction of shares outstanding to 8,000,000 is a condition precedent to
consummation of the Share Exchange. All of the dollar amounts shown have been
converted to U.S. dollars.
<TABLE>
<CAPTION>
NINE MONTHS ENDED ELEVEN MONTHS ENDED
APRIL 30, 1996 JULY 31, 1995
<S> <C> <C>
Revenues.................................. $ -0- $ -0-
Net loss.................................. $ 184,957 $ 235,694
Net loss per common share................. $ 0.02 $ 0.03
Total assets.............................. $ 753,151 $ 628,029
Long-term debt (less current maturities).. $ -0- $ -0-
Book value per common share............... $ 0.07 $ 0.07
Cash dividends declared................... $ -0- $ -0-
</TABLE>
SELECTED UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following table presents selected unaudited pro forma financial
information giving effect to the proposed Share Exchange on the basis described
in the notes to the pro forma combined condensed financial statements included
elsewhere herein. The pro forma information is derived from the pro forma
financial statements and should be read in conjunction with those statements.
See the North Lily Unaudited Pro Forma Condensed Consolidated Balance Sheet
attached hereto as Exhibit C.
15
<PAGE>
As explained in Note 3 of Notes to Pro Forma Condensed Consolidated Balance
Sheet, pro forma statements of operations are not presented, pursuant to
Rule 11-02(b)(1) of Regulation S-X, since no pro forma adjustments are required.
Tamarine has not yet generated any revenues. It has incurred operating overhead
types of expenses, resulting in losses of $184,957 and $235,694 for the nine-
month period ended April 30, 1996 and eleven-month period ended July 31, 1995,
respectively. Similarly, for the three months ended March 31, 1996 and fiscal
year ended December 31, 1995, the Company generated no revenues from operations
and incurred losses of $114,540 and $922,032, respectively.
<TABLE>
<CAPTION>
BALANCE SHEET DATA:
MARCH 31, 1996
<S> <C>
Current Assets..................................... $ 234,013
Current Liabilities................................ $ 686,133
Working Capital.................................... $ (452,120)
Total Assets....................................... $4,237,471
Shareholders' Equity............................... $3,106,338
</TABLE>
COMPARATIVE PER SHARE DATA
The following table presents historical data for the Company and Tamarine
and pro forma per share data giving effect to the Share Exchange on the basis
described in the notes to the pro forma combined condensed financial statements
included elsewhere herein. The table should be read in conjunction with the
historical financial statements of the Company and Tamarine and the pro forma
financial statements included elsewhere herein. Historical per share
information for North Lily gives effect to the proposed 1-for-10 reverse stock
split, since approval of the reverse stock split is necessary to effect the
Share Exchange. Per share information for Tamarine assumes 8,000,000 shares
outstanding, since reduction of shares outstanding to 8,000,000 is a condition
precedent to consummation of the Share Exchange. The "Tamarine Equivalent" data
has been determined by multiplying the "Tamarine Historical" data by 26.67,
which is the number of shares of Tamarine common stock to be exchanged for each
post-reverse split share of the Company's Common Stock received by the Tamarine
shareholders. See the North Lily Unaudited Pro Forma Condensed Consolidated
Balance Sheet attached hereto as Exhibit C.
<TABLE>
<CAPTION>
NORTH LILY TAMARINE HISTORICAL TAMARINE
HISTORICAL FISCAL ELEVEN EQUIVALENT ELEVEN
YEAR ENDED MONTHS ENDED MONTHS ENDED PRO FORMA
DECEMBER 31, JULY 31, 1995 JULY 31, 1995 COMBINED
1995
<S> <C> <C> <C> <C>
Net loss................... $ .39 $.03 $ .79 not provided
Cash dividends............. -- -- -- --
<CAPTION>
NORTH LILY TAMARINE HISTORICAL TAMARINE
HISTORICAL THREE NINE MONTHS EQUIVALENT NINE MONTHS
MONTHS ENDED ENDED APRIL 30, ENDED APRIL 30, PRO FORMA
MARCH 31, 1996 1996 1996 COMBINED
<S> <C> <C> <C> <C>
Net loss................... $ .05 $.02 $ .62 not provided
Cash dividends............. -- -- -- --
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
TAMARINE EQUIVALENT
NORTH LILY MARCH TAMARINE APRIL APRIL 30, PRO FORMA
31, 1996 30, 1996 1996 COMBINED
<S> <C> <C> <C> <C>
Book value per
share....... $1.03 $.07 $1.80 $.95
</TABLE>
INTEREST OF CERTAIN PERSONS IN THIS PROPOSAL
Mr. John R. Twohig, an officer and director of the Company and of Tamarine
Ventures Ltd., has a substantial interest in this proposal.
RECOMMENDATION AND VOTE REQUIRED
Approval of the reverse split is required if the Company is to acquire
Tamarine Ventures Ltd. Approval of both the reverse split (Proposal 2) and this
proposal is necessary to acquire Tamarine Ventures Ltd. If either the reverse
split (Proposal 2) or this proposal to acquire Tamarine Ventures Ltd. is not
approved, the Company will not acquire Tamarine Ventures Ltd.
The Board recommends that the shareholders vote "FOR" this proposal to
approve the acquisition of Tamarine. The affirmative vote of a majority of the
shares represented at the Meeting and entitled to vote is required for approval.
See "Voting Securities and Principal Holders Thereof" above.
PROPOSAL 4: ADOPTION OF 1996 STOCK OPTION PLAN
The Board is requesting that the shareholders of the Company adopt the 1996
Stock Option Plan (the "Plan") reserving an aggregate of 2,750,000 shares of the
Company's Common Stock (the "Available Shares") for issuance pursuant to the
exercise of stock options ("Options") which may be granted to employees,
officers, and directors of the Company and consultants to the Company. The Plan
also provides for annual adjustment in the number of Available Shares,
commencing December 31, 1996, to a number equal to 10% of the number of shares
outstanding on December 31 of the preceding year or 2,750,000 shares, whichever
is greater. The Plan was adopted by the Board of Directors on March 22, 1996.
The Plan is designed to (i) induce qualified persons to become employees,
officers, or directors of the Company; (ii) reward such persons for past
services to the Company; (iii) encourage such persons to remain in the employ of
the Company or associated with the Company; and (iv) provide additional
incentive for such persons to put forth maximum efforts for the success of
business of the Company. To the extent that management personnel may be
eligible to receive Options which may be granted under the Plan, management has
an interest in obtaining approval of the Plan by the Company's shareholders. As
of December 31, 1995, eight persons were eligible to participate in the Plan.
The Plan will be administered by the Compensation Committee of the Board of
Directors (the "Committee"). Transactions under the Plan are intended to comply
with all applicable conditions of Rule 16b-3 under the Securities Exchange Act
of 1934, as amended (the "1934 Act"). In addition to determining who will be
granted Options, the Committee has the authority and discretion to determine
when Options will be granted and the number of Options to be granted. The
Committee may determine which Options may be intended to qualify ("Incentive
Stock Option") for special treatment under the Internal Revenue Code of 1986, as
amended from time to time (the "Code") or Non-Qualified Options ("Non-Qualified
Stock Options") which are not intended to so qualify. See "Federal Income Tax
17
<PAGE>
Consequences" below. The Committee also may determine the time or times when
each Option becomes exercisable, the duration of the exercise period for Options
and the form or forms of the instruments evidencing Options granted under the
Plan. The Committee may adopt, amend, and rescind such rules and regulations as
in its opinion may be advisable for the administration of the Plan. The
Committee may amend the Plan without shareholder approval where such approval is
not required to satisfy any statutory or regulatory requirements.
The Plan provides that disinterested directors will receive automatic
options grants to purchase 100,000 shares (10,000 post-reverse split shares) of
the Company's Common Stock upon their initial appointment or election as
directors, and on the date of each subsequent annual shareholders' meeting,
which vest in 33-1/3% installments commencing on the first anniversary of the
grant date. Grants to employee directors and officer/directors can be either
Non-Qualified Stock Options or Incentive Stock Options, to the extent that they
do not exceed the Incentive Stock Option exercise limitations, and the portion
of an option to an employee director or officer/director that exceeds the dollar
limitations of Code Section 422 will be treated as a Non-Qualified Stock Option.
All options granted to disinterested directors will be Non-Qualified Options.
The Committee also may construe the Plan and the provisions in the
instruments evidencing options granted under the Plan to employee and officer
participants and is empowered to make all other determinations deemed necessary
or advisable for the administration of the Plan. Option grants to disinterested
directors are self-administering and not subject to the Committee's discretion.
The Committee may not adversely affect the rights of any participant under any
unexercised option or any potion thereof without the consent of such
participant. This Plan will remain in effect until it is terminated by the
Compensation Committee, except that no Incentive Stock Option will be granted
after March 22, 2006.
The Plan contains provisions for proportionate adjustment of the number of
shares for outstanding options and the option price per share in the event of
stock dividends, recapitalizations resulting in stock splits or combinations or
exchanges of shares.
Participants in the Plan may be selected by the Committee from employees
and officers of the Company and its subsidiaries and consultants to the Company
and its subsidiaries. Disinterested directors receive annual automatic option
grants, as described above. In determining the persons to whom options will be
granted and the number of shares to be covered by each option, the Committee
will take into account the duties of the respective persons, their present and
potential contributions to the success of the Company, and such other factors as
the Committee deems relevant to accomplish the purposes of the Plan.
Only employees of the Company and its subsidiaries, as the term "employee"
is defined for the purposes of the Code will be entitled to receive Incentive
Stock Options. Incentive Stock Options granted under the Plan are intended to
satisfy all requirements for incentive stock options under Section 422 of the
Code and the Treasury Regulations thereunder.
Each option granted under the Plan will be evidenced by a written option
agreement between the Company and the optionee. The option price of any
Incentive Stock Option may be not less than 100% of the Fair Market Value per
share on the date of grant of the option; provided, however, that any Incentive
Stock Option granted under the Plan to a person owning more than ten percent of
the total combined voting power of the Common Stock will have an option price of
not less than 110% of the Fair Market Value per share on the date of grant of
the Incentive Stock Option. Each Non-Qualified Stock Option granted under the
Plan will be at a price no less than 85% of the Fair Market Value per share on
the date of grant thereof, except that the automatic stock option grants to
disinterested directors will be at a price equal to the Fair Market Value per
share on the date of grant. "Fair Market Value" per share as of a particular
date is defined in the Plan as the last sale price of the
18
<PAGE>
Company's Common Stock as reported on a national securities exchange or on the
NASDAQ System or, if none, the average of the closing bid and asked prices of
the Company's Common Stock as reported by NASDAQ or, if such quotations are
unavailable, the value determined by the Committee in its discretion in good
faith.
The exercise period of options granted under the Plan may not exceed ten
years from the date of grant thereof. Incentive Stock Options granted to a
person owning more than ten percent of the total combined voting power of the
Common Stock of the Company will be for no more than five years. Except in the
case of options granted to disinterested directors, who comprise the
Compensation Committee, the Committee will have the authority to accelerate or
extend the exercisability of any outstanding option at such time and under such
circumstances as it, in its sole discretion, deems appropriate. However, no
exercise period may be extended to increase the term of the option beyond ten
years from the date of the grant.
To exercise an option, the optionee must pay the full exercise price in
cash, in shares of Common Stock having a Fair Market Value equal to the option
price or in property or in a combination of cash, shares, and property and,
subject to approval of the Committee. The Committee has the sole and absolute
discretion to determine whether or not property other than cash or Common Stock
may be used to purchase the shares of Common Stock thereunder and, if so, to
determine the value of the property received.
An option may not be exercised unless the optionee then is an employee,
officer, or director of the Company or its subsidiaries, and unless the optionee
has remained continuously as an employee, officer, or director of the Company
since the date of grant of the option. If the optionee ceases to be an
employee, officer, or director of the Company or its subsidiaries other than by
reason of death, disability, or for cause, all options granted to such optionee,
fully vested to such optionee but not yet exercised, will terminate three months
after the date the optionee ceases to be an employee, officer or director of the
Company. All options which are not vested to an optionee, under the conditions
stated in this paragraph for which employment ceases, will immediately terminate
on the date the optionee ceases employment or association.
If an optionee dies while an employee, officer or director of the Company,
or if the optionee's employment, officer, or director status terminates by
reason of disability, all options theretofore granted to such optionee, whether
or not otherwise exercisable, unless earlier terminated in accordance with their
terms, may be exercised at any time within one year after the date of death or
disability of said optionee, by the optionee or by the optionee's estate or by a
person who acquired the right to exercise such options by bequest or inheritance
or otherwise by reason of the death or disability of the optionee.
Options granted under the Plan are not transferable other than by will or
by the laws of descent and distribution or pursuant to a qualified domestic
relations order as defined by the Code or Title I of the Employee Retirement
Income Security Act of 1974, or the rules thereunder. Options may be exercised,
during the lifetime of the optionee, only by the optionee and thereafter only by
his legal representative. An optionee has no rights as a shareholder with
respect to any shares covered by an option until the option has been exercised.
As a condition to the issuance of shares upon the exercise of an option,
the Company will require the optionee to pay to the Company the amount of the
Company's tax withholding liability required in connection with such exercise.
The Company, to the extent permitted or required by law, may deduct a sufficient
number of shares due to the optionee upon exercise of the option to allow the
Company to pay such withholding taxes. The Company is not obligated to advise
any optionee of the existence of any tax or the amount which the Company will be
so required to withhold.
19
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
The federal income tax discussion set forth below is included for general
information only. Optionees are urged to consult their tax advisors to
determine the particular tax consequences applicable to them, including the
application and effect of foreign, state, and local income and other tax laws.
Incentive Stock Options. No income results to the holder of an Incentive
Stock Option upon the grant thereof or issuance of shares upon exercise thereof.
The amount realized on the sale or taxable exchange of the Option Shares in
excess of the option exercise price will be considered a capital gain, except
that, if a sale, taxable exchange, or other disposition occurs within one year
after exercise of the Incentive Stock Option or two years after the grant of the
Incentive Stock Option (generally considered to be a "disqualifying
disposition"), the optionee will realize compensation, for federal income tax
purposes, on the amount by which the lesser of (I) the fair market value on the
date of exercise or (ii) the amount realized on the sale of the shares, exceeds
the exercise price. Any appreciation on the shares between the exercise date
and the disposition will be taxed to the optionee as capital gain. The
difference between the exercise price and the fair market value of the shares
acquired at the time of exercise is a tax preference item for the purpose of
calculating the alternative minimum tax on individuals under the Code. This
preference amount will not be included again in alternative minimum taxable
income in the year the taxpayer disposes of the stock.
Non-Qualified Stock Options. No compensation will be realized by the
optionee of a Non-Qualified Stock Option at the time it is granted. Upon the
exercise of a Non-Qualified Stock Option, an optionee will realize compensation
for federal income tax purposes on the difference between the exercise price and
the fair market value of the shares acquired at the time of exercise. If the
optionee exercises a Non-Qualified Stock Option by surrendering shares of the
Company's Common Stock, the optionee will not recognize income or gain at the
time of exercise.
Consequences to the Company. The Company recognizes no deduction at the
time of grant or exercise of an Incentive Stock Option and recognizes no
deduction at the time of grant of a Non-Qualified Stock Option. The Company
will recognize a deduction at the time of exercise of a Non-Qualified Stock
Option on the difference between the option price and the fair market value of
the shares on the date of grant. The Company also will recognize a deduction to
the extent the optionee recognizes income upon a disqualifying disposition of
shares underlying an Incentive Stock Option.
VESTING
Unless otherwise specified in an optionee's agreement, options granted
under the Plan to officers, officer/directors, disinterested directors who are
not on the Committee, and employees will become vested with the optionee under
the following schedule: 50% upon the first anniversary of the option grant and
12.5% upon each of the four three-month periods following the first anniversary.
RECOMMENDATION AND VOTE REQUIRED
The Board recommends that the shareholders vote "FOR" this proposal to
approve the 1996 Stock Option Plan. The affirmative vote of a majority of the
shares represented at the Meeting and entitled to vote is required for approval
of the 1996 Stock Option Plan. See "Voting Securities and Principal Holders
Thereof" above.
20
<PAGE>
PROPOSAL 5: ADOPTION OF 1996 RESTRICTED STOCK PLAN
The Board is requesting that the shareholders of the Company adopt the 1996
Restricted Stock Plan (the "Plan") reserving an aggregate of 2,750,000 shares
(the "Available Shares") of the Company's Common Stock for issuance to
employees, officers, and directors of the Company and consultants to the
Company. The Plan also provides for annual adjustment in the number of
Available Shares, commencing December 31, 1996, to a number equal to 10% of the
number of shares outstanding on December 31 of the preceding year or 2,750,000
shares, whichever is greater. The Plan was adopted by the Board of Directors on
March 22, 1996. The Plan is designed to (i) induce qualified persons to become
employees, officers, or directors of the Company; (ii) reward such persons for
past services to the Company; (iii) encourage such persons to remain in the
employ of the Company or associated with the Company; and (iv) provide
additional incentive for such persons to put forth maximum efforts for the
success of business of the Company. To the extent that management personnel may
be eligible to receive shares which may be issued under the Plan, management has
an interest in obtaining approval of the Plan by the Company's shareholders. As
of December 31, 1995, eight persons were eligible to participate in the Plan.
Shares issued under this Plan are "restricted" in the sense that they are
subject to repurchase by the Company at cost during the vesting period.
The Plan will be administered by the Compensation Committee of the board of
Directors (the "Committee"). Transactions under the Plan are intended to comply
with all applicable conditions of Rule 16b-3 under the Securities Exchange Act
of 1934, as amended (the "1934 Act"). In addition to determining who will be
issued shares, the Committee has the authority and discretion to determine when
shares will be issued and the number of shares to be issued. The Committee also
may determine the purchase price of the shares issued under the Plan, the period
or periods of time during which the Company will have a right to repurchase the
shares and the terms and conditions of such repurchase, and the form or forms of
the instruments evidencing the issuance of shares pursuant to the Plan. The
Committee may adopt, amend, and rescind such rules and regulations as in its
opinion may be advisable for the administration of the Plan. The Committee may
amend the Plan without shareholder approval where such approval is not required
to satisfy any statutory or regulatory requirements.
The Plan provides that disinterested directors will receive automatic
issuances of 100,000 shares (10,000 post-reverse split shares) of the Company's
Common Stock upon their initial appointment or election as directors, and on the
date of each subsequent annual shareholders' meeting, which vest in 33-1/3%
installments commencing on the first anniversary of the issue date.
The Committee also may construe the Plan and is empowered to make all other
determinations deemed necessary or advisable for the administration of the Plan.
Issuances to disinterested directors are self-administering and not subject to
the Committee's discretion. The Committee may not adversely affect the rights
of any participant under any rights previously granted without the consent of
such participant. This Plan will remain in effect until it is terminated by the
Compensation Committee.
The Plan contains provisions for proportionate adjustment of the number of
shares that may be issued under the Plan and the exercise price of any rights of
repurchase or of first refusal under this Plan in the event of stock dividends,
recapitalizations resulting in stock splits or combinations or exchanges of
shares.
Participants in the Plan may be selected by the Committee from employees
and officers of the Company and its subsidiaries and consultants to the Company
and its subsidiaries. Disinterested directors receive annual automatic
issuances, as described above. In determining the persons to whom shares will
be issued and the number of shares to be issued, the Committee will take into
account the
21
<PAGE>
duties of the respective persons, their present and potential contributions to
the success of the Company, and such other factors as the Committee deems
relevant to accomplish the purposes of the Plan.
Shares issued under the Plan will be evidenced by a written restricted
stock purchase agreement between the Company and the participant. Shares issued
under the Plan are transferable only if the transferee agrees to be bound by all
of the terms of the Plan, including the Company's right to repurchase the
shares, and only if such transfer is permissible under federal and state
securities laws. To facilitate the enforcement of the restrictions on transfer,
the Committee may require the holder of the shares to deliver the certificate(s)
for such shares to be held in escrow during the period of restriction.
FEDERAL INCOME TAX CONSEQUENCES
The federal income tax discussion set forth below is included for general
information only. Participants are urged to consult their tax advisors to
determine the particular tax consequences applicable to them, including the
application and effect of foreign, state, and local income and other tax laws.
Section 83(a) of the Internal Revenue Code provides that the receipt of
stock subject to a substantial risk of forfeiture and which is nontransferable
does not result in taxable income until the restrictions lapse. At that time,
the employee recognizes compensation income (taxable at the rate applicable to
ordinary income) in the amount of the spread between the value of the stock and
the amount, if any, the employee paid for the stock. The Company must withhold
employment taxes on this income, and generally may deduct the amount the
employee includes in income as an ordinary business expense.
VESTING
Unless otherwise specified in a participant's agreement, shares issued
under the Plan to officers, officer/directors, disinterested directors who are
not on the Committee, and employees will become vested with the participant
under the following schedule: 50% upon the first anniversary of the date of
issuance and 12.5% upon each of the four three-month periods following the first
anniversary.
RECOMMENDATION AND VOTE REQUIRED
The Board recommends that the shareholders vote "FOR" this proposal to
approve the 1996 Restricted Stock Plan. The affirmative vote of a majority of
the shares represented at the Meeting and entitled to vote is required for
approval of the 1996 Restricted Stock Plan. See "Voting Securities and
Principal Holders Thereof" above.
PROPOSAL 6: AUTHORIZATION OF PREFERRED STOCK
The Company proposes to amend Article IV of its Articles of Incorporation
to authorize 5,000,000 shares of Preferred Stock, no par value per share. A copy
of Article IV as it would read following adoption of this proposal is included
as Exhibit A to this Proxy Statement. The board of directors would be given the
authority to determine the terms of the Preferred Stock, including dividend
rates, conversion prices, voting rights, redemption prices, maturity dates, and
other rights and preferences. No further authorization by holders of the Common
Stock for the issuance of the Preferred Stock is to be obtained.
22
<PAGE>
Although no offering of Preferred Stock is contemplated in the proximate
future, the current Board of Directors believes that it is desirable to have
shares of Preferred Stock available for issuance. Current management has had
many discussions with other parties while attempting to acquire assets and/or
businesses into the Company. Shares of Preferred Stock would represent another
means to acquire assets and/or businesses. The terms of the Preferred Stock
could be negotiated on a transaction-by-transaction basis. It is unlikely that
further authorization for the issuance of the securities by a vote of holders of
the Common Stock will be solicited prior to such issuance. None of the
directors or executive officers of the Company has any substantial interest,
direct or indirect, in this proposal.
RECOMMENDATION AND VOTE REQUIRED
The Board recommends that the shareholders vote "FOR" this proposal to
approve the authorization of the Preferred Stock. The affirmative vote of a
majority of the outstanding shares entitled to vote is required for approval.
See "Voting Securities and Principal Holders Thereof" above.
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
Coopers & Lybrand served as the independent accountants for the Company for
the year ended December 31, 1995. Management of the Company intends to select
such firm as the Company's independent accountants for the fiscal year ending
December 31, 1996.
A representative of Coopers & Lybrand is not expected to be present at the
Annual Meeting.
OTHER MATTERS
Except for the matters referred to in the accompanying Notice of Annual
Meeting, management does not intend to present any matter for action at the
Annual Meeting and knows of no matter to be presented that is a proper subject
for action by the shareholders at the meeting. However, if any other matters
should properly come before the meeting, it is intended that votes will be cast
pursuant to the authority granted by the enclosed Proxy in accordance with the
best judgment of the person or persons acting under the Proxy.
ANNUAL REPORT
The Company's Annual Report to Shareholders is being mailed with this Proxy
Statement. It does not contain all the information contained in the Company's
Form 10-K for the year ended December 31, 1995, as filed with the Securities and
Exchange Commission under the Securities Exchange Act of 1934.
UPON WRITTEN REQUEST, THE COMPANY WILL PROVIDE, WITHOUT CHARGE, A COPY OF
ITS ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 AND
ITS QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1996, TO ANY OF
THE COMPANY'S SHAREHOLDERS OF RECORD. ANY SUCH WRITTEN REQUEST MAY BE ADDRESSED
TO THE CORPORATE SECRETARY, NORTH LILY MINING COMPANY, 1800 GLENARM PLACE, SUITE
210, DENVER, COLORADO 80202. THE WRITTEN REQUEST SHALL INCLUDE A GOOD FAITH
REPRESENTATION THAT, AS OF AUGUST 30, 1996, THE PERSON MAKING THE REQUEST WAS
THE BENEFICIAL OWNER OF COMMON STOCK OF THE COMPANY ENTITLED TO VOTE AT THE
ANNUAL MEETING.
23
<PAGE>
INCORPORATION BY REFERENCE
The Company hereby incorporates by reference the financial statements and
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations" contained in the Annual Report to Shareholders which
is being mailed with this Proxy Statement.
SHAREHOLDER PROPOSALS
Any shareholder proposing to have any appropriate matter brought before the
next annual meeting of shareholders must submit such proposal in accordance with
the proxy rules of the Securities and Exchange Commission. Such proposals
should be sent to the Corporate North Lily Mining Company, 1800 Glenarm Place,
Suite 210, Denver, Colorado 80202, for receipt no later than December 31, 1996.
By order of the Board of Directors:
Stephen E. Flechner, President
Denver, Colorado
September 18, 1996
24
<PAGE>
EXHIBIT A
If the proposal to authorize Preferred Stock is approved by the
shareholders, Article IV of the Company's Articles of Incorporation would be
amended to state as follows:
ARTICLE IV
CAPITAL STOCK
-------------
Section 1. Classes and Shares Authorized. The authorized capital
--------- -----------------------------
stock of the corporation shall be 5,000,000 shares of Preferred Stock, no
par value, and 30,000,000 shares of Common Stock, $.10 par value.
Section 2. Preferred Stock.
--------- ---------------
Shares of Preferred Stock may be divided into such series as may be
established from time to time by the Board of Directors. The Board of
Directors from time to time may fix and determine the relative rights and
preferences of the shares of any series so established.
Section 3. Common Stock.
--------- ------------
(a) After the corporation shall have complied with all the
requirements, if any, with respect to the setting aside of sums as sinking
funds or redemption or purchase accounts, then, and not otherwise, the
holders of the Common Stock shall be entitled to receive such dividends as
may be declared from time to time by the Board of Directors of the
corporation and paid out of funds legally available therefor.
(b) In the event of voluntary or involuntary liquidation,
distribution, or sale of assets, dissolution, or winding-up of the
corporation, the holders of the Common Stock shall be entitled to receive
all of the remaining assets of the corporation, tangible and intangible, of
whatever kind available for distribution to stockholders, ratably in
proportion to the number of shares of the Common Stock held by them
respectively.
(c) Except as may otherwise be required by law, each holder of the
Common Stock shall have one vote in respect of each share of the Common
Stock held by him on all matters voted upon by the stockholders.
Section 4. General Provisions. The capital stock of the corporation
--------- ------------------
may be issued for money, property, services rendered, labor done, cash
advanced to or on behalf of the corporation, or for any other assets of
value in accordance with an action of the Board of Directors, whose
judgment as to the value of the assets received in return for said stock
shall be conclusive, and said stock, when issued, shall be fully paid and
nonassessable.
A-1
<PAGE>
EXHIBIT B
TAMARINE VENTURES LTD.
FINANCIAL STATEMENTS
JULY 31, 1995
I N D E X
Auditor's Report
Consolidated Balance Sheet
Consolidated Statement of Operations and Retained
Earnings (Deficit)
Consolidated Statement of Changes in Financial
Position
Notes to the Financial Statements
B-1
<PAGE>
[LETTERHEAD OF CASSON & SHPAK APPEARS HERE]
________________________________________________________________________________
AUDITOR'S REPORT
To the Members of
Tamarine Ventures Ltd.
We have examined the balance sheet of TAMARINE VENTURES LTD. as at JULY 31,
1995 and the statements of operations and retained earnings, and changes in
financial position for the 11 months then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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 significant estimates made by
management, as well as evaluation of the overall financial statement
presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at July 31, 1995 and the
results of its operations and the changes in its cash resources for the year
then ended in accordance with generally accepted accounting principles.
Chartered Accountants
August 29, 1995
B-2
<PAGE>
TAMARINE VENTURES LTD.
CONSOLIDATED BALANCE SHEET
FOR THE 11 MONTHS ENDED JULY 31, 1995
A S S E T S
<TABLE>
<CAPTION>
1995
----
<S> <C>
Current
Cash $ 28,362
Accounts receivable 22,401
Prepaid expenses 12,000
---------
62,763
Option agreement - (Note 3) 45,578
Capital Assets - (Note 4) 745,138
Incorporation costs 2,838
---------
$ 856,317
=========
<CAPTION>
L I A B I L I T I E S
Current
Bank overdraft $ 12,718
Accounts payable and accrued liabilities 126,792
---------
139,510
---------
Contigencies note
Share capital - (Note 5) 1,038,176
Retained earnings (deficit) (321,369)
---------
716,807
---------
$ 856,317
=========
</TABLE>
Approved by the Directors:
__________________________ Director
__________________________ Director
B-3
<PAGE>
TAMARINE VENTURES LTD.
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
FOR THE 11 MONTHS ENDED JULY 31, 1995
<TABLE>
<CAPTION>
<S> <C>
1995
-----
$ -
Revenue ---------
Operating expenses
Bank charges and interest 197
Consultants 116,370
Professional fees 48,086
Management fees 57,500
Office 19,241
Rent 16,502
Travel 62,165
Amortization 1,308
---------
321,369
---------
Income (loss) for the year (321,369)
Retained earnings (deficit) beginning of year -
----------
Retained earnings (deficit) end of year $ (321,369)
==========
Loss per share $ .05
==========
</TABLE>
B-4
<PAGE>
TAMARINE VENTURES LTD.
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION (CASH)
FOR THE 11 MONTHS ENDED JULY 31, 1995
<TABLE>
<CAPTION>
<S> <C>
1995
-----
Operating activities
Income (loss) for the year $ (321,369)
Amounts charged against income but requiring
an outlay of cash:
Amortization 1,308
---------
(320,061)
Changes in non-cash working capital items 92,391
---------
(227,670)
---------
Investing activities
Purchase of capital assets (746,446)
Purchase of option agreement (45,578)
Incorporation costs (2,838)
---------
(794,862)
---------
Financing activities
Share capital -issued for cash 288,176
-issued for capital assets 750,000
---------
1,038,176
---------
Increase in cash and equivalents 15,644
---------
Cash and equivelants, end of year $ 15,644
=========
Cash $ 28,362
Bank overdraft (12,718)
---------
$ 15,644
=========
</TABLE>
B-5
<PAGE>
TAMARINE VENTURES LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE 11 MONTHS ENDED JULY 31, 1995
1. INCORPORATION
The Company was incorporated on January 7, 1994, under the British Columbia
Companies Act for the purpose of acquiring, developing, manufacturing and
marketing of marine products.
2. SIGNIFICANT ACCOUNTING POLICIES
Accounting Principles
---------------------
The Company prepares its accounts in accordance with accounting principles
generally accepted in Canada which, as applied in these financial
statements conform in all material respects with the accounting principles
generally accepted in the United Kingdom. These financial statements are,
unless otherwise noted, presented in Canadian $.
Consolidation
-------------
These consolidated financial statements include the accounts of the Company
and its subsidiaries:
Port Isaac Workboats Limited
Tamarine Limited
Amortization
------------
The Company amortizes its fixed assets using the following rates on a
straight line basis. Amortization commences upon the date the Company
begins usage of the asset:
Furniture and fixtures 20%
Computer equipment 33%
Molds 5%
Foreign Currency Translation
----------------------------
Monetary assets and liabilities denominated in foreign currencies are
translated at the rates of exchange prevailing at the balance sheet date.
Non-monetary assets and liabilities are translated at rates in effect at
the dates the assets were acquired or obligations incurred. Revenue and
expense items are translated at the average rate for the year. The
resulting gains and losses are included in operations.
Development costs
-----------------
Development costs are expensed as occurred unless the development costs
meet the generally accepted accounting criteria for deferral and
amortization. The Company interprets these criteria on a stringent basis
under which interpretation few, if any, development costs would qualify for
deferral.
B-6
<PAGE>
TAMARINE VENTURES LTD.
NOTES TO THE FINANCIAL STATEMENTS .../CONT'D
FOR THE 11 MONTHS ENDED JULY 31, 1995
2. SIGNIFICANT ACCOUNTING POLICIES ...CONT'D
Continuance of Operations
-------------------------
These financial statements are prepared on the going concern basis which
implies that the Company will continue realizing its assets and discharging
its liabilities in the normal course of business. The ability to continue
as a going concern is dependent upon the Company obtaining additional
working capital and arranging adequate additional financing.
Loss per Share
--------------
Loss per share is calculated on the basis of the weighted average number of
common shares outstanding and issued for the year.
3. AGREEMENTS
a) Port Isaac Workboats
--------------------
The Company, pursuant to an asset purchase agreement with a shareholder the
Company has:
i) purchased certain vessel molds, known as the Offshore 105 and
Offshore 125, plans and rights to use the designs outside of the
European Economic Community for 750,000 common shares (after
rollback) of the Company at a deemed value of $750,000.
ii) signed an option agreement giving it the right to purchase the
remaining business of the vendor known as Port Isaac Workboats,
including leasehold interests, vessel molds known as the Offshore
Dory, the Offshore 25, and upgrades to the Offshore 125, and all
design and products rights (including all rights in the European
Economic Community) for $250,000 Canadian of which $25,000 has
been paid.
b) Tamarine Limited
----------------
The Company purchased from shareholders and directors of the Company all
the issued and outstanding shares of Tamarine Limited for (Pounds)2
Sterling and a 1 1/2 % Royalty on Contracts initiated prior to the purchase
and the assumption of certain liabilities of Tamarine Limited.
The net assets acquired were:
Accounts receiveable $ 22,401
=======
Bank overdraft $ 12,718
Accounts payable 9,683
-------
$ 22,401
=========
B-7
<PAGE>
TAMARINE VENTURES LTD.
NOTES TO THE FINANCIAL STATEMENTS .../CONT'D
FOR THE 11 MONTHS ENDED JULY 31, 1995
3. AGREEMENTS ...CONT'D
c) Rhys Capital Limited
--------------------
The Company has signed an agreement with Rhys Capital Limited (RHYS) for
Rhys to locate, initiate negotiations for, and arrange financing for the
acquisition of operating companies in Australia in exchange for fees of:
a) Australian $173,181 payable in advance;
b) expenses incurred by Rhys;
c) 5% of the total transaction payable in shares or cash, upon
completion of the acquisition;
d) 5% of the shares of Tamarine Ventures Ltd. upon successful
completion of the acquisition;
e) $17,500 support per month subsequent to completion, for ongoing
market support.
The company has agreed to issue 450,000 shares to Rhys in exchange for the
expenses to be incurred by Rhys.
The company has accrued 50,000 as payable under the contract being the
estimate of amounts completed at July 31, 1995.
<TABLE>
<CAPTION>
4. CAPITAL ASSETS Accumulated Net book
Cost Amortization Value
---- ------------ --------
<S> <C> <C> <C>
Furniture and fixtures $ 5,700 $ 189 $ 5,511
Computers 11,324 1,119 10,205
Molds 729,422 - 729,422
--------- --------- ----------
$ 746,446 $ 1,308 $ 745,138
========= ========= ==========
</TABLE>
5. SHARE CAPITAL
Authorized: 100,000,000 common shares without par value.
<TABLE>
<CAPTION>
Shares issued for cash at: Amount Shares
-------------------------- ------ ------
<S> <C> <C>
$ .000833 A, B, D $ 5,001 6,001,200
$ .0001 C, D 175 1,750,000
$ .25 C, E 253,000 1,012,000
$ .50 C, E 30,000 60,000
--------- ----------
288,176 8,823,200
Shares issued for assets A, B, D 750,000 750,000
---------- ----------
$ 1,038,126 9,573,200
========== ==========
</TABLE>
B-8
<PAGE>
TAMARINE VENTURES LTD.
NOTES TO THE FINANCIAL STATEMENTS .../CONT'D
FOR THE 11 MONTHS ENDED JULY 31, 1995
5. SHARE CAPITAL ...CONT'D
"A" denotes shares issued
"B" after giving effect to a 2 to 1 rollback
"C" shares allotted and un-issued
"D" subject to earnout escrow agreement
"E" subject to Pooling agreement.
6. RELATED PARTY TRANSACTIONS
The purchase and option agreement to acquire Port Isaac Workboats (see Note
3 [a]).
Purchase of Tamarine Limited (see Note 3[b]).
Management fees of $57,500 were paid to two of the Company's directors and
shareholders.
Rent and office service fees of $8,477 were paid to a former director and
shareholder.
Rent and office service fees of $6,420 were paid to a company controlled by
a shareholder.
Consultation fees and disbursements of $32,956 were accrued to two
shareholders of the Company .
Consultation fees of $16,000 were paid to a shareholder of the Company to
manage Tamarine Limited.
Accounting fees of $2,313 were paid to a company owned by a director and
shareholder.
B-9
<PAGE>
TAMARINE VENTURES LTD.
INTERIM FINANCIAL STATEMENTS
APRIL 30, 1996
(UNAUDITED - SEE NOTICE TO READER)
INDEX
-----
Notice to Reader
Balance Sheet
Statement of Loss and Deficit
Notes to the Financial Statements
B-10
<PAGE>
TAMARINE VENTURES LTD.
________________________________________________________________________________
STE 402 - 938 HOWE STREET, VANCOUVER, B.C. V6Z 1N9 TEL (604)687-7593 FAX
(604)687-7278
NOTICE TO READER
We have compiled the interim balance sheet of Tamarine Ventures Ltd. as at
April 30, 1996 and interim statements of loss and deficit for the nine month
period then ended for management purposes only. We have not audited, reviewed or
otherwise attempted to verify the accuracy or completeness of such information.
Readers are cautioned these statements may not be appropriate for their
purposes.
May 25, 1996
Vancouver, B.C.
B-11
<PAGE>
Tamarine Ventures Ltd
INTERIM BALANCE SHEET
April 30, 1996
(Unaudited - See Notice to Reader)
<TABLE>
<CAPTION>
1996 1996
April 30 July 31
ASSETS
<S> <C> <C>
Current assets
Cash $ 1,835 $ 28,362
Accounts receivable 22,401
Prepaid expenses 12,000
---------- --------
1,835 62,763
Option Agreement 45,578 45,578
Deferred acquisition costs 225,000
Capital Assets 749,611 745,138
Incorporation costs 2,261 2,838
---------- --------
$1,024,285 856,317
========== ========
LIABILITIES
Current liabilities
Bank overdraft $ $ 12,718
Accounts payable and accrued liabilities 291,217 126,792
---------- --------
291,217 139,510
SHAREHOLDERS' EQUITY
Capital stock 1,305,978 1,038,176
Accumulated deficit (572,910) (321,369)
---------- --------
733,068 716,807
---------- --------
Approved stock 1,024,285 856,317
</TABLE>
_________________________Director
_________________________Director
See Accompanying Notes
B-12
<PAGE>
Tamarine Ventures Ltd.
INTERIM STATEMENT OF LOSS AND DEFICIT
For the period August 1, 1995 to April 30, 1996
(Unaudited - See Notice to Reader)
<TABLE>
<CAPTION>
Period from Period from
August 1, 1995 August 31, 1994
to April 30, 1996 to July 31, 1995
<S> <C> <C>
Expenses
Consulting and filing fees $ 14,982 $ 116,370
Professional fees 39,979 48,086
Management fees 26,150 57,500
Office expense 53,070 19,438
Rent 4,105 16,502
Travel 113,255 62,165
Amortization 1,308
----------- -----------
251,541 321,369
Net loss for the period (251,541) (321,369)
----------- -----------
Accumulated deficit
Beginning of period (321,369) (321,369)
----------- -----------
End of period (572,910) (321,369)
----------- -----------
</TABLE>
See Accompanying Notes
B-13
<PAGE>
TAMARINE VENTURES LTD.
NOTES TO THE INTERIM FINANCIAL STATEMENTS
April 30, 1996
(Unaudited - See Notice to Reader)
1. Going concern
These financial statements have been prepared based on the going concern
basis of accounting. This basis of accounting assumes the Company will be able
to realize its assets and settle its liabilities in the normal course of
business. Failure of the Company to continue as a going concern may result in
the realization of assets at amounts significantly different from net book
value.
2. Significant accounting policies
Reporting currency - All amounts reported are in Canadian funds.
B-14
<PAGE>
EXHIBIT C
NORTH LILY MINING COMPANY
PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET AS AT MARCH 31, 1996
(Unaudited - Prepared by Management)
C-1
<PAGE>
NORTH LILY MINING COMPANY
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS AT MARCH 31, 1996
(UNAUDITED - PREPARED BY MANAGEMENT)
<TABLE>
<CAPTION>
NORTH LILY
MINING TAMARINE PRO FORMA
COMPANY VENTURES LTD. ADJUSTMENTS PRO FORMA
$ $ $ $
(NOTE 3)
A S S E T S
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS
Current assets:
Cash and cash equivalents 111,904 1,350 (11,171) (i) (102,083)
Marketable securities 52,976 - - 52,976
Accounts receivable 35,747 - - 35,747
Inventory 43,207 - - 43,207
----------- ----------- ---------- ------------
243,834 1,350 (11,171) 234,013
Advances to Tamarine Ventures Ltd. 103,308 22,605 (i) -
(125,913) (iv) -
Plant and equipment, net 272,124 551,184 - 823,308
Mineral properties, net 3,072,693 - - 3,072,693
Other assets 107,457 200,617 (200,617) 107,457
----------- ----------- ---------- ------------
3,799,416 753,151 (315,096) 4,237,471
=========== =========== ========== ============
LIABILITIES
Current liabilities:
Accounts payable 362,996 214,130 11,434 (i)
(125,913) (iv) 462,647
Accrued and other liabilities 38,000 - - 38,000
Reclamation liabilities 185,486 - - 185,486
----------- ----------- ---------- ------------
586,482 214,130 (114,479) 686,133
Due to officers 445,000 - - 445,000
----------- ----------- ---------- ------------
1,031,482 214,130 (114,479) 1,131,133
----------- ----------- ---------- ------------
SHAREHOLDERS' EQUITY
Common stock 2,820,222 960,278 300,000 (iii)
(960,278) (iii) 3,120,222
Additional paid-in capital 49,143,994 - 38,404 49,182,398
Accumulated deficit (48,950,479) (421,257) 421,257 (iii) (48,950,479)
Treasury stock (267,395) - - (267,395)
Marketable securities valuation adjustment 21,592 - - 21,592
----------- ----------- ---------- ------------
2,767,934 539,021 (200,617) 3,106,338
----------- ----------- ---------- ------------
3,799,416 753,151 (315,096) 4,237,471
=========== =========== ========== ============
</TABLE>
C-2
<PAGE>
NORTH LILY MINING COMPANY
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS AT MARCH 31, 1996
(UNAUDITED - PREPARED BY MANAGEMENT)
1. PROPOSED SHARE EXCHANGE WITH TAMARINE VENTURES LTD.
The Company is in the final stages of its negotiation of 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 will be 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"). On
closing, the Company will issue 300,000 Post-Consolidated Shares of the
Company in exchange for all of the issued and outstanding common shares of
Tamarine, thereby making Tamarine a wholly-owned subsidiary of the Company
(the "Share Exchange"). The Company has also agreed to issue up to
2,700,000 additional Post-Consolidated Shares (the "Performance Shares") of
its common stock to the shareholders of Tamarine, if during any four
consecutive calendar quarters, Tamarine achieves any of the following:
i) 700,000 Post-Consolidated Shares upon generating gross revenues of
$8,000,000, not later than December 31, 1997;
ii) 1,000,000 Post-Consolidated Shares upon generating gross revenues
of $20,000,000, not later than December 31, 1999; and
iii) 1,000,000 Post-Consolidated Shares upon achieving $2,750,000 in
net profits, after tax, not later than December 31, 1999.
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.
2. BASIS OF PRESENTATION
The pro forma condensed balance sheet has been prepared for inclusion in
the Company's annual information circular and relating to the Agreement and
giving effect to the transactions described in Note 3.
The pro forma condensed balance sheet should be read in conjunction with
the audited consolidated financial statements of the Company and Tamarine
and other information referred to in the annual information circular. It
has been compiled from:
(a) the unaudited condensed consolidated balance sheet of the Company as
at March 31, 1996; and
(b) the unaudited condensed consolidated balance sheet of Tamarine as at
April 30, 1996, which is expressed in Canadian Dollars. The dollars
have been translated into United States Dollars. At March 31, 1996,
the value of the United States Dollar in terms of Canadian Dollars was
$1.36.
The acquisition of Tamarine will be accounted for as a purchase
transaction. The assets and liabilities of Tamarine acquired are adjusted
to their estimated fair values as described in Note 3 below.
In the opinion of management, this pro forma condensed consolidated balance
sheet includes all the adjustments necessary for fair presentation of the
proposed transaction in accordance with United States generally accepted
accounting principles. The pro forma condensed balance sheet is not
necessarily indicative of the results of operations or the financial
position that may be obtained in the future.
C-3
<PAGE>
NORTH LILY MINING COMPANY
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS AT MARCH 31, 1996
(UNAUDITED - PREPARED BY MANAGEMENT)
3. PRO FORMA TRANSACTIONS
To date, Tamarine has not generated revenues and has only incurred
corporate and administrative expenses. For the nine month period ended
April 30, 1996, Tamarine has reported total expenses of $184,957
(Cdn.$251,541). In the opinion of management, a pro forma condensed income
statement is not necessary for fair representation of the proposed
transaction.
The pro forma condensed consolidated balance sheet at March 31, 1996 has
been compiled assuming the transactions occurred on March 31, 1996 and
gives effect to the following:
Prior to the Acquisition
------------------------
(i) the additional advances of $22,605 by the Company to Tamarine
subsequent to March 31, 1996 ($11,171 recorded by Tamarine to
April 30, 1996);
(ii) a consolidation of the issued and outstanding common stock of the
Company on a one new share (the "Post-Consolidated Share") for
ten old common shares;
On Acquisition
--------------
(iii) the issuance of 300,000 Post-Consolidated Shares in exchange for
all of the issued and outstanding common shares of Tamarine at a
deemed value of $1.12 per Post-Consolidated Share (the
"Acquisition"). As indicated in Note 2, the Acquisition will be
accounted for using the purchase method. Details of assets and
liabilities acquired are as follows:
<TABLE>
<S> <C>
$
Net assets acquired at assigned values
Cash 1,350
Non-cash working capital defiency (214,130)
Capital assets 551,184
---------
Total consideration 337,054
=========
</TABLE>
(iv) advances of $125,913 by the Company to Tamarine are eliminated.
4. PERFORMANCE SHARES
As described in Note 1, the Company may be required to issue up to
2,700,000 Performance Shares if Tamarine achieves certain performance
criteria. The issuance of the Performance Shares, if any, will be recorded,
when determinable, as an additional cost of the Acquisition.
C-4
<PAGE>
PROXY
NORTH LILY MINING COMPANY
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD OCTOBER 25, 1996
The undersigned hereby constitutes and appoints Stephen E. Flechner and W.
Gene Webb the true and lawful attorneys and proxies of the undersigned each
with full power of substitution and appointment, for and in the name, place,
and stead of the undersigned to act for and to vote all of the undersigned's
shares of common stock of North Lily Mining Company (the "Company") at the
Annual Meeting of Shareholders to be held on October 25, 1996, at 10:00 a.m.,
Mountain Standard Time, at the Colorado National Bank, 5th Floor, 918-17th
Street, Denver, Colorado, and at any and all adjournments thereof, for the
purpose of considering and acting upon:
1. ELECTION OF DIRECTORS [_] FOR all nominees [_] WITHHOLD AUTHORITY
listed below to vote for all
(except as marked nominees listed
to the contrary below
below)
(INSTRUCTION: To withhold authority to vote for any individual nominee mark the
box next to the nominee's name below.)
[_] S. Flechner [_] T. Loud [_] J. Twohig [_] W. Webb
2. PROPOSAL TO APPROVE THE REVERSE STOCK SPLIT
[_] FOR [_] AGAINST [_] ABSTAIN
3. PROPOSAL TO ACQUIRE TAMARINE VENTURES LTD.
[_] FOR [_] AGAINST [_] ABSTAIN
4. PROPOSAL TO ADOPT 1996 STOCK OPTION PLAN
[_] FOR [_] AGAINST [_] ABSTAIN
(Continued on reverse side)
<PAGE>
5. PROPOSAL TO ADOPT 1996 RESTRICTED STOCK PLAN
[_] FOR [_] AGAINST [_] ABSTAIN
6. PROPOSAL TO AMEND ARTICLES OF INCORPORATION TO AUTHORIZE PREFERRED STOCK
[_] FOR [_] AGAINST [_] ABSTAIN
7. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED BY THE
UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS GIVEN, THEN THE SHARES REPRESENTED
BY THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2, 3, 4, 5, AND 6.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting
of Shareholders and the Proxy Statement furnished therewith.
Dated and signed , 1996.
___________________________________________
___________________________________________
SIGNATURE(S) OF SHAREHOLDER(S)
(SIGNATURE(S) SHOULD AGREE WITH THE NAME(S)
STENCILED HEREON. EXECUTORS, ADMINISTRATORS,
TRUSTEES, GUARDIANS, AND ATTORNEYS SHOULD
INDICATE WHEN SIGNING. ATTORNEYS SHOULD
SUBMIT POWERS OF ATTORNEY.
PLEASE SIGN AND RETURN THIS PROXY IN THE ENVELOPE PROVIDED. THE GIVING OF A
PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IF YOU ATTEND THE
MEETING. [_] I/WE WILL ATTEND THE MEETING.
PROXIES MUST BE SIGNED AND DATED IN ORDER TO BE VALID.
<PAGE>
NORTH LILY MINING COMPANY
ANNUAL REPORT
<PAGE>
REPORT TO SHAREHOLDERS
September 16, 1996
Dear Fellow Shareholder:
Since joining North Lily, we have worked toward repositioning the Company for
growth. This has included disposition of unprofitable assets, elimination of
most third party debt obligations, favorable disposition of pre-existing
stockholder litigation (by dismissal-judgement-injunction in favor of the
Company), acquisition of the San Simon (Bolivia) gold prospect, and gradual
progress at the Tuina (Chile) copper project.
Now, we are providing for stockholder approval of capital structure
consolidation at the Annual Meeting of shareholders. There are presently
nearly 30 million shares authorized and outstanding; the reverse split will
reduce the outstanding shares to nearly 3 million, but will not alter the number
of shares authorized for issuance, which will remain at 30 million. This one
for ten reverse stock split is painful to each of us. It is important however,
in order to favorably position the Company and its shares in the investment
community for the purpose of seeking necessary financing for existing projects
and potential acquisitions of value.
RECENT DEVELOPMENTS:
- --------------------
GOLD: The Company's (46% held) San Simon, Bolivia gold prospect consists of
- ----- ---------
four claim blocks aggregating 5300 hectares in the northern exposure of
Precambrian rocks comprising the Bolivian Shield. Garimpeiros are conducting
small scale-near surface high grade gold mining operations on adjoining claims
which are held and being drilled by Eaglecrest Explorations Ltd. (who currently
predict potential for a multi-million ounce open pitable gold camp). A recent
Eaglecrest drill hole intersected a very encouraging 110 ft. of 0.1 ounce per
ton gold, starting only 87 ft. from surface. District gold mineralization
appears in west to northwest trending zones of quartz veins which are believed
to trend onto or repeat on the Company's property. The Company recently
conducted successful claim perfection field work, along with geologic mapping,
and rock-chip and soil geochemical sampling on its property; assays and analysis
are pending.
COPPER: Earlier this month, Yuma Gold Mines Limited announced that the water
- -------
rights needed for development of the Tuina, Chile copper mine have now been
-----
received from the Chilean government. International Mahogany Corp and the
Company have contracted to sell a 74% aggregate interest in Tuina to Yuma,
leaving the Company with a 26% participating interest. Yuma's news release of
September 4, 1996 reported that a new feasibility study is nearing completion
for the annual production of 40,000 metric tonnes of copper cathode at a central
SX-EW plant site. Six of these forty thousand tons of copper are "to be derived
from the conversion into cathodes of copper sulphate crystals produced at the
Tuina solvent extraction - copper sulphate facility", according to the news
release. The Company awaits documentation and accounting from Yuma.
LAND: In Tintic, Utah, the Company is owner/lessor of mineral acreage which
- -----
yields annual rental of $75,000, requires $150,000 of annual work by the
Company's lessee, and would pay a 5% NSR royalty in the event of mineral
production. In addition, the Company owns 100% of several thousand acres of
rolling hills susceptible to future real estate development. The acreage is
located 70 miles south of Salt Lake City in the population corridor developing
in that direction along Utah State Route 6. There has yet to be a sale of
substantial acreage for residential or commercial construction in the vicinity.
But, as the growth of Utah real estate continues to the south of Salt Lake City
and Provo, sales of substantial acreage of your Company's holdings are a
potential source of future income. Towards this end, the Company is initiating
efforts to interest commercial or residential real estate developers in North
Lily's buildable surface real estate (which includes access to power and
water).
2
<PAGE>
ACQUISITIONS: The capital structure consolidation necessary for financing the
- -------------
Company, is also a requirement for accomplishing the proposed acquisition of
privately held Tamarine Ventures of Canada and England. Under the leadership of
Mr. John R. Twohig, Tamarine is assembling a management team that is highly
experienced and well positioned to participate in current technology-driven
marine industry growth and profitability, focussed on the burgeoning economies
of Asia Pacific.
Tamarine has an initial production foothold of fast, inshore commercial craft in
Cornwall, England. Tamarine is pursuing agreement and financing to acquire a
leading Australian builder of catamaran fast ferries (light weight, fast water
transport of people, vehicles and cargo), for which there is a growing demand in
excess of supply especially in Asia Pacific. Tamarine also is pursuing
agreement and financing with a prominent Indonesian industrialist to form a new
ferry and shipping company to service the growing economy of the vast Indonesian
archipelago and its almost 200 million people. Due to inadequate surface and
water transportation available in Indonesia, the first stage of operations would
be transport of trucks, containers and new cars on ferries where trucks with
cargo roll-on and roll-off. Preliminary talks with providers of ship finance
for the initial ships indicate market support.
Our original agreement to acquire Tamarine was abandoned, and we are negotiating
final terms of an amended agreement as described in the Proxy Statement. We
believe Tamarine can provide near term cash flow and long term growth to the
Company if we can achieve final acquisition agreement, shareholder approval of
--
the acquisition in addition to the capital structure consolidation, and
significant related financing.
Meanwhile, the Company is reviewing natural resource projects of merit in
various jurisdictions from British Columbia to Indonesia for potential
acquisition and financing, based upon the capital structure consolidation
requiring shareholder approval at the Annual Meeting.
We sincerely appreciate your continued support and remain dedicated to and
confident of building shareholder value. You can help by voting and mailing
your proxy promptly upon receipt, and by having your shares registered in your
name and delivered to your possession. This will save time and costs in
soliciting proxies, and should inhibit short selling by limiting the amount of
shares available to borrow in street name (not held and registered in the name
of the owner) to cover short sales of shares not yet owned. We hope to
frustrate such counter-productive activities by substantive project progress and
shareholder communication. Please call us with any questions.
Stephen E. Flechner W. Gene Webb
President & CEO Executive Vice President
3
<PAGE>
BUSINESS OVERVIEW
North Lily Mining Company ("NLMC") was incorporated in Utah in 1916. NLMC
produced gold, silver, lead, zinc, and copper from the North Lily Mine in the
Tintic Mining District of Utah from 1925 until 1949.
Tuina, Chile - Copper
The Tuina properties are held by Compania Minera Phoenix S.A., a Chilean company
that is owned 41% by the Company and 59% by International Mahogany Corp.
("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
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Restructuring of Tuina Ownership."
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).
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.
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.
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, Utah - Underlying Values
The Tintic Properties, which are held 100% by the Company, are located in the
Tintic Mining District, Utah and Juab Counties in the State of Utah,
approximately 80 miles south of Salt Lake City. The properties comprise (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. There are currently no gold reserves identified on
the properties, however deep exploration targets are renewing the interest of
several companies.
On January 23, 1987, the Company entered into a ten-year mining lease with
Centurion Mines Corporation, a non-affiliated mining company, covering
approximately 3,109 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.
The property remains subject to a lease agreement with Centurion Mines
Corporation who are operators of the property. Centurion Mines Corporation has
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.
4
<PAGE>
Silver City Joint Venture, Utah - Gold
The joint venture property, which is owned 50% by North Lily and 50% by
Mahogany, is located in Juab County, approximately 80 miles south of Salt Lake
City, Utah and consists of approximately 20 acres. 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.
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.
San Simon, Bolivia - Gold
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.
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.
There are no known gold reserves on the San Simon Property at this time.
Minimal work was performed on the San Simon Property in 1995.
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.
5
<PAGE>
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.
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 (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:
6
<PAGE>
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 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
7
<PAGE>
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.
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.
8
<PAGE>
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 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.
9
<PAGE>
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
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
10
<PAGE>
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 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.
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
11
<PAGE>
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 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.
12
<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
13
<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.
14
<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.
15
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
_______________
<TABLE>
<CAPTION>
Common Stock Additional
----------------------- 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)
========== ========== =========== ============ ========
Accumulated
Company Marketable Foreign
Stock Securities Currency
Held by Valuation Translation
Subsidiaries Adjustment Adjustment Total
------------ ---------- ------------ -------------
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.
16
<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
========= =========== ===========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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.
17
<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.
18
<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.
19
<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.
20
<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>
<CAPTION>
<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>
21
<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.
22
<PAGE>
NORTH LILY MINING 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").
23
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
____________________
6. PROPOSED SHARE EXCHANGE WITH TAMARINE VENTURES LTD., CONTINUED:
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. 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
========== ========== ========== ========
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>
24
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
____________________
7. PLANT AND EQUIPMENT, CONTINUED:
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.
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).
25
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
____________________
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).
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)
========= =========== ===========
The components of the foreign pretax loss from continuing operations are as follows:
1995 1994 1993
--------- ----------- -----------
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
tax assets as they are reduced by a valuation allowance in accordance with
SFAS No. 109.
26
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
____________________
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.
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.
27
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
____________________
12. RELATED PARTY TRANSACTIONS, CONTINUED:
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).
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>
28
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
____________________
13. COMMITMENTS AND CONTINGENCIES, CONTINUED:
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.
(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>
29
<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>
30
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
____________________
15. SEGMENT INFORMATION, CONTINUED:
The Company did not generate any revenue during 1994 and 1995.
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.
31
<PAGE>
ADDITIONAL SHAREHOLDER INFORMATION
CORPORATE HEADQUARTERS
North Lily Mining Company
1800 Glenarm Place, Suite 210
Denver, Colorado 80202
(303) 294-0427
OFFICERS AND DIRECTORS
Stephen E. Flechner - President, Chief Executive Officer and Director
North Lily Mining Company
W. Gene Webb - Executive Vice President, Corporate Secretary and Director
North Lily Mining Company
John R. Twohig - Vice President - Corporate Development and Director
Chairman and Chief Executive Officer, Tamarine Ventures, Ltd.
Nick DeMare - Treasurer
President, Chase Management Ltd.
Theodore E. Loud - Director
President, TEL Advisors Inc. of Virginia
AUDITORS
Coopers & Lybrand L.L.P.
Oakland, California
LEGAL COUNSEL
Law Offices of Fay M. Matsukage
Denver, Colorado
STOCK TRANSFER AGENT AND REGISTRAR
American Securities Transfer & Trust, Inc.
938 Quail Street, Suite 101
Lakewood, Colorado 80215
ANNUAL MEETING OF SHAREHOLDERS
The annual meeting of North Lily Mining Company's shareholders will be held on
October 25, 1996, at 10:00 a.m. at the Colorado National Bank, 5th Floor, 918 -
17th Street, Denver, Colorado.
We encourage shareholders to participate in this meeting in person or by proxy.
MARKET FOR COMMON STOCK 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>
Fiscal 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
Fiscal 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 July 29, 1996, the closing bid price of the common stock was $0.156 per
share.
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 July 29, 1996, there were 10,419 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.
SEC FORM 10-K AND FORM 10-Q
Upon written request, the Company will provide, without charge, a copy of its
Annual Report on Form 10-K for the fiscal year ended December 31, 1995 and
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, to any of the
Company's shareholders of record. Any such written request may be addressed to
the Corporate Secretary, North Lily Mining Company, 1800 Glenarm Place, Suite
210, Denver, Colorado 80202. The written request shall include a good faith
representation that, as of August 30, 1996, the person making the request was
the beneficial owner of Common Stock of the Company entitled to vote at the
Annual Meeting.
32
