<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
----------------------
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
EXCHANGE ACT
0-16740
-----------
(Commission File Number)
NORTH LILY MINING COMPANY
-----------------------------
(Exact name of registrant as specified in its charter)
UTAH 87-0159350
---- ----------
(State of Incorporation) (IRS Employer Identification No.)
SUITE 210, 1800 GLENARM PLACE, DENVER, COLORADO 80202
- ----------------------------------------------- ---------
(Address of principal executive offices) (ZIPCode)
(303) 294-0427
------------------
(Registrant's telephone number, including area code)
N/A
-------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _______
-------
As of November 12, 1997 the Registrant had 3,092,122 shares of common stock,
$0.10 par value.
Transitional Small Business Disclosure Format (check one):
Yes _______ No X
-------
<PAGE>
NORTH LILY MINING COMPANY
-------------------------
FORM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
INDEX
-----
<TABLE>
<S> <C>
Part I. Financial Information:
Item 1. - Condensed Consolidated Balance Sheets -
September 30, 1997 and December 31, 1996.................................. 3
- Condensed Consolidated Statements of Cash Flow -
Nine Months Ended September 30, 1997 and 1996............................. 4
- Condensed Consolidated Statements of Operations -
Nine Months Ended September 30, 1997 and 1996............................. 5
- Condensed Consolidated Statements of Shareholder's Equity-
September 30, 1997 and December 31, 1996.................................. 6
- Notes to Condensed Consolidated Financial Statements...................... 7
Item 2. - Management's Discussion and Analysis of
Financial Condition and Results of Operations............................. 8
Part II. Other Information:
Item 6. - Exhibits and Reports on Form 8-K.......................................... 10
Signature................................................................. 11
</TABLE>
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
-------------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 38,950 $ 67,026
Marketable securities 22,580 39,655
Accounts receivable 14,575 37,985
Common stock subscription receivable 200,000 -
Note receivable - 108,000
Total Current Assets 276,105 252,666
Plant and equipment, net 54,204 57,162
Mineral properties, net 3,190,187 3,200,401
Other assets 107,032 112,032
------------ ------------
Total Assets $ 3,627,528 $ 3,622,261
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 285,370 $ 279,928
Accrued and other liabilities 40,000 55,000
Reclamation liabilities 119,206 192,500
------------ ------------
Total Current Liabilities 444,576 527,428
Due to officers 805,000 625,000
------------ ------------
Total Liabilities 1,249,576 1,152,428
------------ ------------
Shareholders' Equity:
Common stock, $0.10 par value; authorized 30,000,000 shares;
issued and outstanding 3,092,122 and 2,992,122 shares
as at September 30, 1997 and December 31, 1996, respectively 309,212 299,212
Additional paid-in capital 51,703,759 51,663,759
Common stock subscribed 200,000 -
Accumulated deficit (49,826,214) (49,501,408)
Marketable securities valuation adjustment (8,805) 8,270
------------ ------------
Total Shareholders' Equity 2,377,952 2,469,833
------------ ------------
Total Liabilities and Shareholders' Equity $ 3,627,528 $ 3,622,261
============ ============
</TABLE>
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED: FOR THE NINE MONTHS ENDED:
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Operating expenses:
General and administrative expenses $ 115,968 $ 141,458 $ 330,534 $ 495,924
Exploration and property carrying costs - 5,426 557 8,675
------------- ------------- ------------- -------------
Operating loss (115,968) (146,884) (331,091) (504,599)
Other income:
Interest income 659 2,100 6,285 3,929
Net realized gain on sale
of marketable securities - - - 118,883
Gain on disposition of mineral properties - 206,897 - 206,897
------------- ------------- ------------- -------------
Net income (loss) $ (115,309) $ 62,113 $ (324,806) $ (174,890)
============= ============= ============= =============
Net income (loss) per common share: $ (0.04) $ 0.02 $ (0.11) $ (0.07)
============= ============= ============= =============
Weighted average common shares outstanding 3,047,678 2,540,353 3,047,678 2,540,353
============= ============= ============= =============
</TABLE>
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIODS ENDED DECEMBER 31, 1996 AND SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL COMMON
--------------------
PAID-IN STOCK ACCUMULATED TREASURY
SHARES AMOUNT CAPITAL SUBSCRIBED DEFICIT STOCK
-------- --------- ------------ ------------ ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 2,594,667 $259,466 $51,264,750 $ - $(48,835,939) $(17,395)
Net loss, year ended December 31, 1996 - - - - (662,557) -
Common stock issued for services rendered 55,000 5,500 79,500 - - -
Common stock issued by private placement 341,073 34,108 351,409 - (2,912) 17,395
Share issue costs - - (31,762) - - -
Marketable securities valuation adjustment - - - - - -
Adjustment for fractional shares issued 1,382 138 (138) - - -
--------- -------- ----------- ------------ ------------ --------
Balance, December 31, 1996 2,992,122 299,212 51,663,759 - (49,501,408) -
Net loss, period ended September 30, 1997 - - - - (324,806) -
Common stock issued by private placement 100,000 10,000 40,000 - - -
Common stock subscribed - - - 200,000 - -
Marketable securities valuation adjustment - - - - - -
--------- -------- ----------- ------------ ------------ --------
Balance, September 30, 1997 3,092,122 $309,212 $51,703,759 $200,000 $(49,826,214) $ -
========= ======== =========== ============ ============ ========
<CAPTION>
MARKETABLE
SECURITIES
VALUATION
ADJUSTMENT TOTAL
------------ ----------
<S> <C> <C>
Balance, December 31, 1995 $ 197,723 $2,868,605
Net loss, year ended December 31, 1996 - (662,557)
Common stock issued for services rendered - 85,000
Common stock issued by private placement - 400,000
Share issue costs - (31,762)
Marketable securities valuation adjustment (189,453) (189,453)
Adjustment for fractional shares issued - -
---------- ----------
Balance, December 31, 1996 8,270 2,469,833
Net loss, period ended September 30, 1997 - (324,806)
Common stock issued by private placement - 50,000
Common stock subscribed - 200,000
Marketable securities valuation adjustment (17,075) (17,075)
---------- ----------
Balance, September 30, 1997 $ (8,805) $2,377,952
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED:
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (324,806) $ (174,890)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Amortization and depreciation 2,958 2,959
Gain on disposition of mineral properties - (206,897)
Net realized gain on sale of marketable
securities and investments - (118,883)
Decrease (increase) in accounts receivable 23,410 (123,805)
Decrease in note receivable 108,000 -
Increase (decrease) in accounts payable and accrued liabilities (9,558) 200,320
Decrease in reclamation liabilities (73,294) (88,075)
Decrease in notes payable - (308,788)
Increase in due to officers 180,000 -
Other 5,000 60,000
------------- -------------
Net cash used for operating activities (88,290) (758,059)
------------- -------------
Cash flows from investing activities:
Acquisition and exploration of mineral properties,
net of option payments received 10,214 (44,957)
Advances to Tamarine Ventures Ltd. - (129,278)
Proceeds from sale of marketable securities and investments - 338,576
Proceeds from sale of mineral properties - 215,292
Proceeds from sale of mining and milling equipment - 5,000
------------- -------------
Net cash provided from investing activities 10,214 384,633
------------- -------------
Cash flows from financing activities:
Proceeds from issuance of common stock 50,000 400,000
------------- -------------
Net increase (decrease) in cash and cash equivalents (28,076) 26,574
Cash and cash equivalents at beginning of period 67,026 122,515
------------- -------------
Cash and cash equivalents at end of period $ 38,950 $ 149,089
============= =============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
<PAGE>
NORTH LILY MINING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
GOING CONCERN
During 1996, 1995, and 1994 the Company incurred net losses of $662,557,
$922,032 and $2,071,147, respectively, and at December 31, 1996 had a working
capital deficiency of $274,762. At September 30, 1997, the Company had a
working capital deficiency of $168,471.
During 1993 the Company ceased operations at its Silver City mine and suspended
mining operations at its Tuina mine. As a result the Company has no operating
cash flow to meet ongoing obligations. The Company has continually been selling
non-essential Company assets to fund ongoing operations and property commitments
over the past three years. The Company requires financing to fund its future
operations and will attempt to meet its ongoing liabilities as they fall due
through the sale of marketable securities or mineral properties or through the
issuance of its common stock. There can be no assurance that the Company will
be able to raise the necessary financing to continue in operations or meet its
liabilities as they fall due or be successful in resolving its contingent
liabilities. Should the Company be unable to realize on its assets and
discharge its liabilities in the normal course of business, the Company may not
be able to continue in operations and the net realizable value of its assets may
be materially less than the amounts recorded on the consolidated balance sheets.
DISCLOSURES
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions for Rule 10-01 of Regulation S-
X. Accordingly, they do not include all the information and footnotes required
by generally accepted accounting principles for complete financial statements.
The unaudited financial statements reflect all adjustments which are, in the
opinion of management, necessary to a fair statement of results for interim
periods presented. All adjustments made in the preparation of interim period
results, for the nine month period ended September 30, 1997, are of a normal
recurring nature. The operating results for the nine month period ended
September 30, 1997 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1997. For further information, refer
to the consolidated financial statements for the year ended December 31, 1996.
DUE TO OFFICERS
As at September 30, 1997, the Company has recorded $805,000 as due to two
officers of the Company. On October 1, 1997, the officers entered into
agreements (the "Agreements") to settle the indebtedness for the issuance of
1,610,000 shares of common stock of the Company. The Agreements provide that
the majority of the shares to be issued will be subject to the risk of
forfeiture if the officers terminate their employment with the Company before
July 1, 1998, unless certain financing conditions are achieved by the Company.
Any shares forfeited will be returned to treasury. In addition, during the
month of May, 1998, the Company may elect to purchase, subject to acceptance by
the officers, any shares that remain subject to the risk of forfeiture, at a
price of $0.50 per share. The Company has also agreed to provide loans to the
officers to cover any tax consequences to the officers as a result of the
issuances of the shares. The loans shall bear interest at a rate equal to prime
plus 1% and shall be secured by the shares issued under the Agreements. This
transaction will reduce non-current liabilities by $805,000 and increase
shareholders' equity by $805,000.
7
<PAGE>
NORTH LILY MINING COMPANY
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
- -------------
RESTRUCTURING OF TUINA OWNERSHIP
Effective April 12, 1995, the Company and Mahogany agreed to a restructuring of
the ownership interest of the Tuina Project. In settlement of the Company's
outstanding debt to Mahogany of $797,481, as at March 28, 1995, the Company
reduced its ownership interest in Compania Minera Phoenix S.A. ("Phoenix") from
50% to 41%. The Company also agreed to terms by which the Company's remaining
interest in the Tuina Project will be impacted. Subsequently, Mahogany agreed
to sell its 59% interest in Phoenix to Yuma Gold Mines Limited ("Yuma"). The
sale to Yuma was extended on several occasions and the terms subsequently
revised (the "Mahogany-Yuma Agreement").
By previous agreements entered into in 1995, on May 3, 1996 Yuma entered into a
revised agreement with the Company. In summary, the Company's remaining
interest in Phoenix will, subject to receipt of regulatory approvals and
completion of the Mahogany-Yuma Agreement, be impacted as follows:
i) Yuma will receive an additional 5% interest in Phoenix in exchange for
funded costs and the delivery of an independent bankable feasibility
study in respect of the Tuina Project;
ii) the Company would be required to sell a further 10% interest in Phoenix
to Yuma for an initial payment of $145,000, less deductions for operating
costs and the costs of securing the water rights for the Tuina Project.
In addition, Yuma is required to make two further payments to the
Company, due upon commencement of Tuina commercial production and one
year thereafter. These payments are to be calculated in relation to the
initial capital costs of the Tuina Project, from a high of $609,000 where
the initial capital costs are less than $14,000,000 with graduating
payments decreasing as capital costs increase, and may be made, at Yuma's
election, in cash or shares of Yuma; and
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. The water rights have now been secured and Yuma
now has to either elect to close the Mahogany - Yuma Agreement, subject to
regulatory approval, or terminate the agreement. If Yuma elects to terminate
the agreement, the Company would not owe Yuma any funds for the Yuma Payments.
8
<PAGE>
On August 4, 1997, Yuma announced that it had completed a bankable feasibility
study for the Tuina Project. Bateman Engineering of Tucson, Arizona conducted
the study in association with New Baron Leveque Inc. ("NBLI") of Belgium, and
Parsons of Pasadena, California. The study outlines the plans for construction
and operation of a 12,000 metric tonne per year solvent extraction
electrowinning ("SX-EW") project. The feasibility study has considered all
aspects of the project including ore reserves, processing, environmental
considerations, and infrastructure to a level suitable for project financing.
Cash flow calculations indicate an internal rate of return of 25.6% and a net
present value of $16.6 million using $1.00 per pound copper. Project life is
six years using current reserves. The plant and associated infrastructure could
be developed for $33.7 million including owner's costs. Cash costs for the
production of copper are estimated at $0.53 per pound of copper.
An extensive analysis of the ore reserves at Tuina conducted by MINTEC of
Tucson, Arizona has defined proven/probable (80%/20%) reserves of 9.36 million
tonnes averaging 1.12% total copper. An additional 3.5 million tonnes of
material of similar grade has been classified as inferred. The overall
stripping ratio for the life of the project has been calculated at 1.72. The
potential for expanding the reserves within the site concessions and therefore
extending the project life is excellent.
Mining, crushing, and material handling will be performed under contract to
NBLI. The plant design incorporates a two-stage crushing circuit followed by
conventional heap leaching on static piles. Pregnant leach solutions will be
collected and clarified, followed by treatment using conventional SX methodology
to produce a rich electrolyte that will be processed into copper cathodes using
conventional EW technology.
Extensive heap leaching and column tests have been performed on the ore, and
copper recovery is expected to be in excess of 85%. Electrical power will be
obtained through an overland transmission line. Most of the site infrastructure
has been developed and will be used by the Tuina operation.
Yuma is in advanced negotiations for financing of the project while concurrently
completing basic engineering. The basic engineering study is expected to lower
both the capital and operating costs for the project.
With the completion of the feasibility study, Yuma will proceed with project
financing and final design and construction of the project. Construction is
scheduled to begin later this year with startup in late 1998.
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.
BOLIVIA - SAN SIMON GOLD PROJECT
The Company and Akiko Gold Resources Ltd. have acquired properties in the San
Simon gold project in northeastern Bolivia totalling 5,300 hectares on a 50/50
basis. The companies are actively seeking a joint venture partner to help
exploit the San Simon property. Several companies are reviewing the data. In
addition, the companies plan to do further work the coming field season,
starting in April/May 1998 which will include stream concentrate sampling and
geochem and rock sampling and mapping to delineate drill targets.
9
<PAGE>
RESULTS OF OPERATIONS
The Company incurred a loss of $324,806 for the nine month period ended
September 30, 1997, compared to a loss of $174,890 for the same period in 1996.
There was no revenue and no cost of sales for the nine month period ending
September 30, 1997. The Company does not anticipate any revenue over the next
year from current properties.
During the nine month period ended September 30, 1997, the Company incurred
$330,534 in general and administration expenses, compared to $495,924 for the
comparable period in 1996. The decrease in general and administration in 1997
occurred mainly as a result of reduced Company personnel and reduced legal and
consulting fees. For the nine month period ended September 30, 1997, the
Company incurred $557 of exploration and property carrying costs and for the
same period in 1996, incurred costs of $8,675. Project costs incurred by the
Tuina project since April 1995 have been funded by Yuma. During the nine month
period ended September 30, 1996, the Company realized gains of $118,883 and
$206,897 on the dispositions of marketable securities and mineral properties,
respectively. No dispositions were made in 1997.
At September 30, 1997 the Company had a working capital deficiency of $168,471,
a decrease of $106,291 from its working capital deficiency of $274,762 at
December 31, 1996.
During the nine month period ended September 30, 1997, the Company was provided
cash of $10,214 from investing activities, comprising $75,000 advance royalty
payment received from Centurion Mines Corporation on the Tintic properties,
offset by $26,021 incurred by the Company on the San Simon gold project and
$38,765 due diligence review costs incurred on the Sadiola West concession in
the Republic of Mali. The Company also received $50,000 on the completion of a
private placement of 100,000 common shares.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
-----------------
On June 23, 1993, Jack M. Scanlon and Carolyn M. Scanlon; Dr. Richard
Urwiller and Roberta Urwiller, Dr. William Inkret, Jr., M.D.,
individually and Dr. William Inkret, Jr., M.D., P.C., a corporation
and profit sharing trust; Dr. Richard Granberg and Mary Granberg, on
behalf of themselves and all other person similarly situated, filed an
action in the United States District Court for the District of
Montana, Butte Division, against Magellan Resources Inc., a
corporation; Mahogany International Inc. (sic), a corporation, former
subsidiaries of North Lily Mining Company, a corporation, their former
parent corporation; Ruen Drilling, a corporation, Longyear Company, a
corporation; and other unknown John Doe persons and corporations. The
plaintiffs allege, that, as a result of exploration activity in the
Southern Cross area of Montana, local ground water supplies have been
contaminated and reduced. Subsequent to initial discovery proceedings
the Plaintiffs have offered to settle, and the defendants have
accepted, whereby the defendants will arrange to drill a water well.
The anticipated cost to the Company is expected to be nominal.
10
<PAGE>
ITEM 2. CHANGES IN SECURITIES
---------------------
Pursuant to a subscription agreement, dated September 29, 1997, with
Capco Resources Ltd. ("Capco"), the Company has agreed to issue
400,000 units, for $200,000 at $0.50 per unit. The units will consist
of two shares of common stock and one warrant. Each warrant will be
exercisable to purchase a share of the Company's common stock at a
price of $0.35 per share if exercised by September 30, 1998, or at a
price of $0.50 per share if exercised during October 1, 1998 to
September 30, 1999. The warrants shall expire after September 30,
1999. The Company relied on the registration exemption provided by
Section 4(2) of the Securities Act, due to the non-public nature of
the Offering. The Company has notified Capco that payment is due and
payable by November 30, 1997.
ITEM 5. OTHER INFORMATION
-----------------
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) The following exhibits are filed with this report.
Regulation
S-K Number Exhibit
---------- -------
27.1 Financial Data Schedule
(b) Reports on Form 8-K: none
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORTH LILY MINING COMPANY
By: /s/ Nick DeMare
---------------------------------------------
Nick DeMare November 13, 1997
Chief Financial Officer and Chief Accounting Officer
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NORTH LILY
MINING COMPANY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 38,950
<SECURITIES> 22,580
<RECEIVABLES> 214,575
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 276,105
<PP&E> 5,857,217
<DEPRECIATION> 2,505,794
<TOTAL-ASSETS> 3,627,528
<CURRENT-LIABILITIES> 444,576
<BONDS> 805,000
0
0
<COMMON> 309,212
<OTHER-SE> 51,903,759
<TOTAL-LIABILITY-AND-EQUITY> 3,627,528
<SALES> 0
<TOTAL-REVENUES> 6,285
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 331,091
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (324,806)
<INCOME-TAX> 0
<INCOME-CONTINUING> (324,806)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (324,806)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
